Seventh Circuit Holds Fees Due Under Pre-petition Agreement
Subject to Discharge
By the Hon. Dennis R. Dow

In Bethea v. Robert J. Adams and Associates, 352 F.3d 1125 (7^th Cir. 2003), the Seventh Circuit has ruled that in a chapter 7 case a pre-petition agreement for payment of legal fees creates a debt subject to discharge like any other. The court rejected arguments that §329 evinces an intent to except such fees from the scope of the discharge and that public policy, including the need to facilitate the employment of counsel for chapter 7 debtors, mandated an exception for pre-petition fees.
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Chapter 7 Debtors’ Attorneys Must Be Employed Pursuant to §327 In Order to Receive Post-petition Compensation Under §330(a)(1)
By the Hon. Dennis R. Dow

In Lamie v. United States Trustee, 540 U.S. ___ (2004), the Supreme Court affirmed the Fourth Circuit and held that a chapter 7 debtor’s attorney must be appointed by the trustee, and approved by the court, pursuant to 11 U.S.C. §327, in order to receive post-petition (or post-conversion) compensation. The Court held that awkwardness created by the 1994 amendment to 11 U.S.C. §330(a)(1) did not render it ambiguous and that its plain language deprived the courts of authority to compensate debtor’s counsel, whether or not that was what Congress intended. The Court went on to note that even if it did look at the legislative history, that history is unclear and would not necessarily lead to a different decision.
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Consumer Committee Meeting to Address Debtors’ Counsel at Annual Spring Meeting

The Consumer Committee will feature a discussion on compensation of debtors’ counsel in chapter 13 and chapter 7 bankruptcy cases at the Annual Spring Meeting, April 15-18 in Washington, D.C. The committee will discuss the concepts of limited representation and unbundling of services, the concept of “no-look” fees in the chapter 13 context and what counsel has to do to earn them, as well as other approaches to compensation in chapter 13 cases such as cafeteria plan-type fee schedules for post-petition services. Also on the agenda will be a discussion of the challenges faced by debtors’ counsel in light of recent rulings, including the Supreme Court’s ruling in the Lamie case holding that debtors’ counsel are not entitled to compensation from the estate in chapter 7 cases and the 7th Circuit’s decision in Bethea that fees owed pursuant to pre-petition agreements between debtors and counsel are discharged in bankruptcy. The discussions will be led by a panel including Judge Jennie Latta, from the U.S. Bankruptcy Court for the Western District of Tennessee, Diane Livingstone, Assistant U.S. Trustee for the Southern and Western District of Texas and Marjorie Payne Britt, a Houston, Texas practitioner specializing in debtor representation in consumer cases. Register online for the 2004 Annual Spring Meeting today!