It is hard to deny the growing sense of uncertainty that has developed since 2011 when the Bankruptcy Rules were amended to add Rule 3002.1 which requires, among other things, a notice to be filed itemizing any post-petition fees, expenses or charges incurred in connection with their claim. With more and more disputes arising between Chapter 13 creditors, debtors and trustees over the reasonableness and entitlement of those fees it is imperative that creditors understand the best practices for recovering the full amount of their fees and how to defend against any unwanted objections. For the purposes of this article, we will focus specifically on attorneys’ fees incurred in connection with the filing of a proof of claim and plan review since these are the two most frequently sought and contested fees.
Look to the Agreement:
Unlike most attorneys’ fees sought through a bankruptcy case, entitlement is not determined by Section 506(b) of the Code and, therefore, it is not a question of whether the creditor is under-secured or over-secured. According to Section 1322(e), the court will look to the underlying agreement and non-bankruptcy law to determine if the creditor is entitled to the claimed fee, expense or charge. Consequently, a lender may recover reasonable attorneys fees incurred in connection with the enforcement of the mortgage only where the mortgage contractually imposes a duty on the mortgagor to pay those fees. Therefore, the creditor must examine the underlying loan documents to determine if they allow for the collection of bankruptcy related attorneys fees.
Fees for Filing a Proof of Claim
The industry standard fee allowable for Proof of Claim preparation and plan review is $650-750 (excluding the fee for preparation of the Attachment 410a form). Debtors opposing the reasonableness of attorneys’ fees for preparation of a proof of claim often argue the fee is too high for an inconsequential ministerial task. For example, the court in England stated “filing a proof of claim should merely require transcribing information, which is already available to the lender, to a proof of claim form.”In re England, 586 B.R. 795 (2018).
However, in Mandeville (In re Mandeville, 596 B.R. 750 (Jan. 28, 2019)), a recent opinion out of the Northern District of Alabama, the court disagreed with the findings in England. Instead, Mandeville asked whether the debtors bankruptcy posed a significant risk to the lenders mortgage interest and, if so, was that risk mitigated as a result of the services performed by the lender’s attorney vis-à-vis reviewing the petition, schedules and proposed plan; reviewing the Mortgage and Note, loan history, and accounting; and preparing or inspecting, signing and filing the proof of claim rather than those same tasks being performed by a non-lawyer.
In support of its opinion Mandeville highlighted the potential consequences for a creditor who files an incomplete or inaccurate proof of claim (something made more likely when done by a non-attorney). Remember, the Rules require a timely filed claim to include an itemization of interest, fees, expenses and other charges, and an amount necessary to cure any default; copies of the note and mortgage that evidence the debt and security; a copy of an escrow analysis prepared as of the petition date and, when done correctly, the sum constitutes prima facie evidence of the validity and amount of the claim. However, filing a defective claim could deprive a creditor of the prima facie evidentiary presumption of validity and amount, or worse, it could preclude the creditor from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding or entitle the objecting party to reasonable expenses and attorneys fees caused by the failure. Filing a proof of claim binds the creditor to the courts jurisdiction, a legally significant act tantamount to the filing of a civil complaint that potentially exposes the creditor to defensive counterclaims not otherwise available outside of bankruptcy, such as the Truth in Lending Act.
All of this goes to the importance of having an attorney review and file a proof of claim on behalf of the creditor and justify incurring and reimbursement of attorneys fees through the filing of a PPFN.
Plan Review Fees
Another hotly debated and often disputed fee are expenses incurred by an attorney for reviewing the chapter 13 plan. Again, the most common argument are the fees are excessive and unreasonable particularly in light of the protections afforded by Section 1322(b)(2) which prevents the modification of rights for a claim secured by the debtors principal residence (since PPFNs are only required for principal residence properties). In a perfect world the debtor would propose a plan that always cures the full contractual debt and never violates Section 1322(b)(2) or, if it did violate the Code, the trustee would object and the court would deny confirmation or, such a plan would be unenforceable without the creditors express consent. Sadly, we do not live in this utopian world and as Mandeville notes legal precedent and Section 1327 paint a much more dangerous picture and demonstrate the need for diligent attorney review that would justify the standard $200-$300 plan review fees.
Mandeville cites to two 11thCircuit cases, Bateman and Ilecito,where chapter 13 plans were confirmed despite interfering with the rights of claims secured by principal residence properties and binding the creditors to modified mortgage terms otherwise prohibited under the Code because they failed to object or appeal. In re Bateman, 331 F.3d 821 (11thCir. 2003) and In re Ilecito, 706 Fed. Appx. 636 (11thCir. 2017). Similarly, in Espinosa, the United States Supreme Court held that a creditor was bound by a confirmed plan which paid only principal and discharged interest in violation of Section 523(a)(8); United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010). Lastly, statutory support can be found in Section 1327 which binds creditors to the provisions of the plan.
Bateman, Ilecito and Espinosaserve as cautionary tales and a sober reminder that chapter 13 plans can and will be confirmed that violate the Code and creditors must be prepared for offending debtors to raise these cases along with Section 1327 to bind each creditor to the confirmed plan. Therefore, it is not unreasonable in light of the potential dangers for a creditor to employ an attorney to review one or more chapter 13 plans in defense of its interests and, in exchange, demand a reasonable attorney fee as contemplated by the underlying mortgage.
Detail, Detail, Detail
Given the risks to creditors mortgage interests cited above creditors can make a strong argument for supporting proof of claim and plan review fees. But that is when an objection is filed. The best practice is to avoid incurring additional fees in defense of your notice. Therefore, including as much detail as possible is the best method for avoiding a dispute and convincing the debtor and trustee, on the front end, of the reasonableness of your fees. The court in England denied the creditors fees, in part, because it failed to explain the fees or provide any supporting documentation. While the PPFN form does not provide much space to include detail a savvy filer can include a mark or asterisk in the “dates incurred” or “amount” box and note additional details in boxes 11-14 designated “Other.Specify” or create a text box below Part 2.
For proof of claim fees, it would be appropriate to detail the review and inspection of the note and mortgage; account statement and loan history; escrow analysis statement; preparing and inspecting, signing and filing proof of claim form, and, if a 410a form is being attached to the proof of claim, additional details relating to the preparation and inspection of the full and itemized payment history.
Likewise, when seeking reimbursement for plan review fees it is incumbent on the creditor to include the full scope of detail involved when a plan review is performed. For example, I recommend including detail in the form or on an addendum attached to the notice highlighting such tasks involved as monitoring the docket to and through confirmation; reviewing the note and mortgage and account history; reviewing and analyzing the original and any amended Chapter 13 plans; communicating with the client and debtor’s counsel and any additional tasks relevant to completing the plan review. Incorporating this detail should aid in supporting a PPFN and diminish the grounds for an objection.
“No Look” Standard
Another method for successfully filing a PPFN is knowing whether the local jurisdiction has a threshold consent limit or standard “no look” fee—meaning the trustee or court will not review the fee because it is within a designated “no look” amount. For example, the Northern District of Texas has installed by general order a standard “no look” fee amount of $700 whereby any fees requested below $700 are presumptively reasonable and anything above $700 requires supporting documentation with an attached itemization of services provided. See General Order 2017-01.
In Garcia, the trustee objected to the creditor filing multiple PPFN’s each under the no look amount but combined amounted to $900. The combined fees related to the filing of a proof of claim and plan review fee and the trustee accused the creditor of “stacking” fees in multiple notices to avoid exceeding the no look standard and documentation requirement. In re Garcia, 2018 WL 3203385 N.D. of Tex. Case No. 17-60124-RLJ (June 28, 2018). In response to the trustees objection, the creditor highlighted the fees were based on the standard Fannie Mae fee allowables for services provided by counsel and even filed a copy of the Fannie Mae fee guidelines as an exhibit. The court approved the fees and found nothing improper with the creditor filing multiple notices and even found the creditors response as having satisfied the additional pleadings requirement under the no look standard.
While some courts have promulgated general or administrative orders for setting no look standards others may be more informal. For example, a Middle District of Florida Chapter 13 Trustee has set a no look standard at $865—meaning they deem anything at or below $865 presumptively acceptable and anything above $865 subject to objection unless supporting information is provided upon request. Identifying jurisdictions with no look fee standards and working within the construct will reduce objections and improve recovery of fees. Though stacking fees as alleged by the trustee in Garcia may be improper, using multiple PPFN’s to assert a claim for attorneys’ fees is not forbidden, particularly if the date incurred is different.
Though PPFN’s are basic notices with limited space for detail taking a few additional steps will promote an increase in reimbursable fees: (1) before filing a PPFN, verify the fees are recoverable under the mortgage; (2) identify if the PPFN is being filed in a jurisdiction with a standard no look fee and, if so, work within the confines of the local rules and be prepared to support your fees with additional documentation; (3) make sure to incorporate detail into each PPFN, even if it means using the blank boxes or space below the signature box or even attaching an addendum supporting the request for fees and; (4) if an objection or motion to determine fees is filed by the debtor or trustee it is important to describe the totality of responsibilities involved for filing a proof of claim and scope of performing the plan review as well as assert the significant legal risks to creditors and how those risks are substantially reduced when an attorney performs these functions on behalf of the creditor. Following the aforementioned steps should result in greater predictability and recovery when filing a PPFN.