Chapter 11 Bankruptcy: How Attorneys Have to Get Court Approval for Payment of Fees

Chapter 11 bankruptcy is a particular type of reorganization bankruptcy that is used largely by businesses in order to reorganize debt. In some cases, individuals will also file for Chapter 11 bankruptcy if they want to reorganize their debts but do not qualify for Chapter 13 bankruptcy because their secured or unsecured debts exceed the maximum amount allowed under the U.S. Bankruptcy Code. Generally speaking, Chapter 11 bankruptcy is more complex than other types of bankruptcy, and it tends to be more expensive. For instance, the filing fees are significantly higher, and anyone who files is responsible for a $1,717 case filing fee in addition to attorney fees.  Initial attorney fee retainers for a small to mid-sized Chapter 11 case vary, but expect between $9,000 and $30,000 depending upon the complexity of the case.

With the complex fees and other requirements associated with Chapter 11 bankruptcy, it can be complicated to understand how the payment of attorneys’ fees works. To be clear, under the U.S. Bankruptcy Code, the debtor’s attorney—as well as the trustee and any other professional appointed by the bankruptcy court—must apply for fees in order to be paid. We want to provide you with more information about how attorneys must seek court approval for payment of fees under the U.S. Bankruptcy Code and to say more about how this approval process works.

Applications for Fees Under the U.S. Bankruptcy Code

As a fact sheet from the U.S. Department of Justice, under the U.S. Bankruptcy Code, attorneys and other professionals who provide services to the debtor in the Chapter 11 case are entitled to payment from the bankruptcy estate. However, in order to be eligible for payment, an attorney must file an application with the court for payment, and then the court must approve the fees. Depending upon the length of the case, the debtor’s attorney can apply for payments with the court every 120 days in order to receive interim compensation.

Yet the attorney cannot simply submit an application for payment and expect that it will be approved. Under Section 330 of the U.S. Bankruptcy Code, the fees that the attorney is charging must be “reasonable and necessary.” In addition, the attorneys’ fees must be “comparative to what attorneys charge outside of bankruptcy cases.”

Burden on Attorneys to Prove That Fees Are Reasonable and Necessary

The burden for proving that attorneys’ fees are reasonable and necessary, and that they are in compliance with the U.S. Bankruptcy Code, is on the attorney filing the application for fees. In other words, the attorney seeking payment must prove that the fees she is seeking (or that the firm is seeking) are reasonable and necessary, and that they are comparable to fees charged by attorneys in other types of cases.

Once the debtor’s attorney submits an application for fees, the U.S. Trustee is required to “review, comment, and object, where appropriate, to fee applications that do not satisfy the standards for payment under the Bankruptcy Code.” If the U.S. Trustee objects to the attorney’s application for fees, then the bankruptcy court must decide whether attorneys’ fees should be awarded at all. In some cases, prior to raising an official objection, the U.S. Trustee will ask for additional information from the attorney. Even if the U.S. Trustee raises an objection, it may be possible to resolve it before the court must decide whether to award attorneys’ fees.

In all Chapter 11 cases in which the debtor’s attorney files an application for fees, there are fee guidelines that govern the review of the fee application. There are separate guidelines for reviewing applications for attorneys’ fees in cases where there are significant assets ($50 million or more) and significant liabilities ($50 million or more).

Contact a Chapter 11 Bankruptcy Attorney in Tampa

If you have questions about filing for Chapter 11 bankruptcy, or if you want more information about business bankruptcy options that may be available to you, an experienced Tampa Chapter 11 bankruptcy attorney can speak with you. Contact Samantha L. Dammer for more information about the bankruptcy services we provide to individuals and businesses in the Tampa Bay area.

Resource:

justice.gov/ust/fee-guidelines