2015 Lois R. Lupica, Moderator Maine Law Foundation Professor of Law University of Maine School of Law John Rao Staff Attorney, National Consumer Law Center Sims Crawford Chapter 13 Trustee, Northern District of Alabama Show Me the Money: Debtor’s Attorney’s Fees in Consumer Cases Fontainebleau Miami Beach

Determination of amount of fees in Chapter 13 cases –“no-look” or “presumptive” fees –case-by-case review or “market” approach Fees in Chapter 13 Cases 2

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Presumptively Reasonable fee Fee Application PRF as Starting point Administrative Reserve Menu of Fees Hourly Fee Cradle to Grave fee PRF as Cap Involuntary low or pro bono 4

With respect to fees in Chapter 13 cases, there are significant distinctions in all fee- related practices, customs and policies at the state, district, court and even individual levels. Empirical Evidence 5

Mean Post-BAPCPA Attorney Fee in Discharged Chapter 13 Cases by State Range: $1,560 - $4,950 6

Over 50% of attorneys surveyed charge a flat fee to their Chapter 13 clients. Fifteen percent of the lawyers reported charging by the hour, and ~15% used a combined hourly rate and flat fee (median $271/hour). Others reported charging a “sliding scale,” depending upon what debtors can pay. Data 7

In many jurisdictions, the “flat fee” is a de jure or de facto “presumptively reasonable fee” arrangement. A PRF allows the lawyer to charge a flat, pre- approved fee for an array of services and avoid the necessity of filing a fee application with the court. Presumptively Reasonable Fee 8

Many lawyers reported that when they charged the presumptively reasonable fee, their effective hourly rate was considerably lower than their “usual” hourly rate. Hourly Rate when PRF is Charged 9

What is included in PRF? 10

All jurisdictions with PRF/no-look Initial meeting to explain process Advice to Debtors re: obligations & duties under Code Section 521 Documents Plan341 Meeting Post-341 communication Attendance at confirmation hearing 11

In some jurisdictions the PRF also includes: 12

Some jurisdictions with PRF/no-look Motions to protect Client interests Preparation & Filing of Responses to Motions Motion for Relief Motion for Dismissal Motion to Modify Plan Contested Matter 13

In a few jurisdictions the PRF also includes: 14

A FEW jurisdictions with PRF/no-look Representation of debtor in adversary as Plaintiff Representing Debtor in adversary as Defendant Representation of debtor where court orders “fee shifting” Representing debtor when first hearing is more than 120 days following confirmation 15

In those jurisdictions where the PRF is a “cradle to grave” fee, there is no opportunity, even if the unforeseeable happens, for the lawyer to receive additional compensation. Most often however, the debtor is charged the PRF in a standard case, but if a complication arises, such as the filing of an adversary proceeding, the attorney may be entitled to either a fixed amount of additional compensation, or payment of an hourly rate for time spent. Cradle to Grave or Additional Fee App? 16

Not only is there variation in how much an attorney is paid as well as the method by which the amount of the fee is determined, there are also material differences in Chapter 13 cases as to how the attorney fee is structured. 17

The extent to which an attorney receives his/her fee upfront or over time as part of the plan payments, and over what period of time, turns on one or more of the following variables: Upfront Fee or Paid-through-the-Plan 18

Fee Structure Lawyer/firm policies/busi ness model Presiding Judge Interpretation of Code in Jurisdiction Ch. 13 Trustee’s policies/practices/in terpretations Attorney prediction about case feasibility Market for legal services Local custom and practice 19

Attorney fees received in dismissed cases were 42% lower than those fees received in cases that end in discharge. Significant difference between the fee an attorney charges, and the fee the attorney receives. Dismissed Cases 20

Compensation of counsel when debtor’s best alternative is a Chapter 7 case but debtor cannot pay entire fee prepetition (a) Is a prepetition agreement to pay fees of Chapter 7 attorney dischargeable? (Including consideration of arguments, contrary to Seventh Circuit and other cases, that the agreement is not dischargeable because (1) the obligation to pay fees for representation arises at the time the petition is filed, not before; and (2) § 329 provides the proper basis for determining the propriety of a debtor’s attorney’s fees) Dismissed Cases 21

(b) Use of Chapter 13 as method for paying debtor’s attorney – (i) Fee-only Chapter 13 plan (and professional implications of subjecting a debtor to a higher fee and three years of Chapter 13 bankruptcy); (ii) Filing of Chapter 13 with expectation that debtor will make enough payments to trustee to cover legal fees and then convert to Chapter 7, with attorney then receiving payment (and debtor’s good faith implicates professional propriety of attorney filing a Chapter 13 petition with the knowledge that the debtor does not really expect to obtain Chapter 13 relief) Dismissed Cases 22

DISMISSED CASES $800 paid pre- petition + 25% of unpaid balance up to $300 Pre- petition fee Pro-rata portion of pre- confirmation payments Payments made after adequate protection is paid = nothing Payment up to $400 One-half of the no-look fee $1000 depending upon balance on hand Payment made based on fee application Payment in full Nothing 23

When fee is lower than PRF “Sympathetic client” Debtor “can’t afford” PRF “Disguised Chapter 7” (child support income/ 0% plan”) File Chapter 13 to pay attorney fees with intention to convert 24

Case disposition How much is paid by client How much is received by lawyer Chapter choice How case performs 25

Case disposition How much is paid by client How much is received by lawyer Chapter choice How case performs CRITICAL SUBSTANTIVE EFFECT ON CASE 26

Chapter 7 Cases Compensation of counsel when debtor’s best alternative is a Chapter 7 case but debtor cannot pay entire fee prepetition. Is a prepetition agreement to pay fees of Chapter 7 attorney dischargeable? Fee-only Chapter 13 plan (professional implications of subjecting a debtor to a higher fee and three years of Chapter 13 bankruptcy) 27

Prepetition Representation o What about fee retainers? o How can counsel be paid from estate funds for postpetition work? 28 Chapter 7 Cases

Postpetition Payment for Prepetition Services o Allowed or Not Allowed. o Postpetition vs. post-discharge. Does it matter? o Can a “flat” fee be divided into prepetition and postpetition parts? 29 Chapter 7 Cases

Postpetition Payment of Postpetition Services Allowed. o Postdated checks 30 Chapter 7 Cases

Seeking Fees Above the PRF Does attorney need to show that: –case is “not routine,” or “unusually complex?” –there were “extraordinary circumstances?” –same reasonable and necessary services would not have been performed by other attorneys in district without seeking fees above the PRF? If additional services caused by demanding client, did attorney limit “hand-holding?” 31

Impact of Harris v. Viegelahn Harris v. Viegelahn, 135 S.Ct (U.S. 2015) – Upon conversion “the case is placed under Chapter 7's governance, and no provision in Chapter 13 holds sway.” (p. 1838) Possible solution: debtor's counsel includes in retainer an assignment of and security interest in debtor's post-petition wages held by trustee on date of conversion? Does Harris apply only to conversions, so that dismissal does not abrogate § 1326(a)(2)? 32

“Fee-Only” Chapter 13 Cases Most courts have held “fee-only” chapter 13 cases are not per se impermissible. –In re Brown, 742 F.3d 1309, 1319 (11th Cir. 2014) (“There is no hard and fast rule to be applied. Each case has its own special circumstances, and Chapter 13 requires a case-by-case analysis by the fact-finder”) –In re Puffer, 674 F.3d 78, 83 (1st Cir. 2012) (court should consider totality of circumstances in determining whether case filed in good faith) What are permissible reasons or “special circumstances” justifying fee-only plan? 33

Limited Services Representation Typically consists of the provision by an attorney of a subset of legal services in connection with the filing of a consumer bankruptcy case. In contrast to the plenary representation of a debtor, where the lawyer is paid a full fee to represent a debtor with respect to all aspects of his bankruptcy case—from pre-filing counseling to post- discharge proceedings. 34

Limited Services Representation Undertaken to achieve a lower overall cost, & typically in lieu of filing pro se or filing with the assistance of a petition preparer. Legal representation by an attorney for cost containment purposes. The burden that pro se debtors place on the court system has been widely recognized. 35

Limited Services Representation The chance a pro se debtor’s case will be dismissed due to failure to comply with the Bankruptcy Code and Rules is considerably higher than if the debtor were represented. The American Bankruptcy Institute Ethics Task Force examined the elements of debtor representation in consumer bankruptcy cases. The Task Force developed a framework for engagement of counsel for limited services for LSR representation in Chapter 7 consumer cases only. 36

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