Court Makes Big Changes in Chapter 13 Fees

87644312-1-300x198How much does it cost to file Chapter 13?  I have answered that question for nearly 20 years, and it seems that about every 5 years the local court rules provide a different answer.  Well, the Nebraska Bankruptcy Court rolled out yet another compensation system for debtor’s attorneys effective December 1, and this time I think the Court got it right.

To start with, a $281 court fee is due when the case is filed.  If the debtor cannot afford to pay all of that fee at once, the Court will allow a debtor to pay $75 with the filing of the case and the remaining balance of $206 within 90 days typically.  In addition, most bankruptcy attorneys charge for credit reports they purchase.  However, attorney fees are usually paid out over the term of the 3 to 5 year payment plan, although some attorneys charge a portion of that fee up front.

Bankruptcy courts have used a variety of compensation systems over the years.  In the past attorney fees were determined by an itemized statement of time expended by the debtor’s attorney that was submitted to the Court for approval.  The problem with that system is that some attorneys were charging vastly different hourly rates and spending much more time to complete routine tasks.  As a result, some attorneys were being paid not on the basis of what they actually did for their client but rather on how well they could prepare billing statements.

Other courts have utilized a Flat Fee system that awarded a set amount of compensation at the beginning of the case and did not allow attorneys to apply for additional compensation when they performed new legal tasks, such as amending the payment plan when the debtor’s income changed or suspending payments when they became unemployed or injured.  The obvious problem with that system is that it does not encourage attorneys to provide ongoing support to their clients and some attorneys neglected the case after their fees were paid.

Nebraska has traditionally employed a hybrid system that allowed attorneys to choose whether they would bill hourly for their services or they could accept a flat fee.  Three years ago the Court created a system that allowed a flat fee upon approval of the Chapter 13 payment plan and then allow additional services to be billed out at an hourly rate.  However, I believe the Court has been administratively burdened by reviewing all these fee applications, so now there is a new system.  It is actually a system I recommended to the Court three years ago.

Appendix N of the Nebraska Local Rules not provides for a Flat Fee (what the Court calls a “No Look Fee”) upon approval of the payment plan.  Then, if additional services are provided later on in the case, the Court has provided a list of standard compensation awards for a variety of services, like amending the plans or suspending payments or filing motions to sell property.  At last I think the Court has achieved a good balance between creating a simple system to administer which provides standard compensation for standard services while at the same time providing attorneys a reward for providing ongoing services.   At last the interest of the Courts, the debtors and their attorneys are aligned.

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