Trustee Blog

Attorney’s Fees Discharged under 727

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Chapter 7 Riverside Trustee Charles Daff and the other Riverside Trustees as the debtors about the attorneys fees that are charged or are not charged. Recently the US Trustee has been asking debtors about attorney’s fees that are due after the case is filed. These fees are discharged and the attorney cannot collect on them. The case that this comes from is In re Hessinger & Associates, 192 BR 211 – Dist. Court, ND California 1996.

“Appellant has also asked the court to rule on the issue whether the fee arrangements between the firm and its clients are properly considered to be pre-petition debts which are subject to discharge under § 727 of the Code. In an interlocutory order, the bankruptcy court ruled that the fee agreements were dischargeable; appellant appealed this decision to the Bankruptcy Appellate Panel, which ruled that it lacked jurisdiction over the appeal and thus refused to reach the merits of the dischargeability question.[1] After entering this interlocutory order, the bankruptcy court determined that, due to the firm’s poor representation of Ms. Sogge and Mr. Eleccion and due to the firm’s violations of the Rules, the firm was not entitled to fees in the Sogge and Eleccion cases in any event. Appellant has failed to appeal the bankruptcy court’s conclusion that the firm is not entitled to fees in the Sogge and Eleccion cases even if the fee agreements are not dischargeable; appellee appears to argue that the dischargeability issue is therefore moot, or at least not properly before the court at this time. A close reading of the bankruptcy court’s interlocutory order, however, reveals that it has an effect beyond simply determining whether appellant is entitled to fees in Sogge and Eleccion. Specifically, the order: (1) forbade appellant from attempting to enforce any prepetition contracts after the filing of a bankruptcy petition; (2) forbade appellant from cashing any prepetition checks it had received from its clients after the filing of a bankruptcy petition; (3) forbade appellant from entering into any reaffirmation agreements with its clients without prior court approval; (4) ordered appellant to print “THIS CONTRACT IS NOT ENFORCEABLE AFTER BANKRUPTCY” in bold typeface on all of its fee contracts; and (5) forbade appellant from charging its clients for any postpetition services without first obtaining leave from the court. M record at 8, 9. This order obviously is intended to have a present effect on how appellant is conducting its business, and the court’s vacation of this order would accordingly provide appellant with effective relief. The dischargeability issue thus constitutes a “case or controversy” sufficient to confer jurisdiction on this court. See generally United States v. Johnson, 319 U.S. 302, 63 S.Ct. 1075, 87 L.Ed. 1413 (1943) (case dismissed because it did not present a genuine case or controversy). The court will accordingly consider the propriety of the bankruptcy court’s ruling that the firm’s fee contracts are dischargeable pre-petition debts.

This is the standard for Attorneys fees that are owed after filing in a Chapter 7.  See April 21, 2014 for further findings from the Hessinger Court.

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