Creditor Fees:

While a major concern in Chapter 11 reorganizations and Chapter 12 farm, ranch, and fisherman bankruptcies, a substantial concern is often overbilling by creditors with liens on real estate or other property of the debtor for attorneys fees incurred during the case.  Such fees usually have to be repaid to the creditor through the case if the value of the creditor’s property exceeds to debt owed on such property.  However, there are a number of tools that competent debtor’s counsel can use to challenge excessive fees.  A recent case in a farm bankruptcy from Iowa illustrates some of the requirements that a creditor’s fee application must meet to be allowed.

The initial examination needs to confirm that

  1. the value of the property is higher than the total debt to the creditor, including the requested attorneys fees and costs,
  2. that the agreement between the debtor and the creditor allows for such fees and costs, and
  3. that the fees are reasonable.

The Reasonable requirement is the one most likely to come into play in a typical case.  The Iowa court noted that creditors are required to exercise restraint in billing and avoid overzealous advocacy.  Courts will look at the reasonableness of both the hourly rate charged, including comparable rates in the area, and the reasonableness of the hours incurred.  Courts may disallow fees for billings by multiple counsel for the same matter; or for doing the same thing on multiple days. Courts will see if the fees incurred provided results to the client, and whether there was benefit to the bankruptcy estate.  If substantial work was done on a motion that was not pursued, or was not well taken, such fees may be disallowed.   When time entries supporting the fees lump multiple tasks together, or are too general as to the services provided, this can result in disallowance of the fees.

In the Iowa case the court noted, for example, 450 hours of work billed regarding 8 different continued hearings all ultimately related to a one day trial, finding that much of the work was duplicative and should be reduced or disallowed.  Ultimately, the court disallowed $65,834 in fees requested by the creditor, allowing $153,613 in fees.

Michael Barnett, Esq.
Michael Barnett, PA
506 N Armenia Ave.
Tampa, FL 33609-1703