In Re Puffer

674 F.3d 78 (1st. Cir. 2012)

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Nature of the Case

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Facts

P had unsecured liabilities totaling almost $15,000. His anticipated disposable income amounted to approximately $100 per month. He concluded that he could never satisfy his creditors and decided to consider the advisability of bankruptcy protection. P Berliner, an attorney specializing in bankruptcy. Berliner advised P of his options under Chapter 7 and Chapter 13. Berliner stated that he would not represent the debtor in a Chapter 7 proceeding unless and until the debtor paid him, upfront, the whole of his anticipated legal fees (which he estimated to be around $2,300). If P chose the Chapter 13 alternative, he would not have to pay all of his legal fees immediately but, rather, could pay them over time as part of the Chapter 13 plan. Berliner estimated that the fees associated with a Chapter 13 proceeding would total $4,100. P opted to seek Chapter 13 protection and paid Berliner $500 on account. The plan submitted called for P to pay $100 per month for 36 months (a total of $3,600). Of that amount, only about $300 (or about 2% of the roughly $15,000 owed by the debtor) would be available for distribution to general creditors. Berliner would receive through the plan more than $2,900 for legal services. The remainder of the bankruptcy estate (about $400) would cover the fees of the standing trustee. This type of plan is called a 'fee-only' plan because it pays the debtor's lawyer and the trustee their professional fees but leaves the general creditors holding an empty (or nearly empty) bag. The bankruptcy court rejected the plan on the grounds that neither P's Chapter 13 petition nor the plan itself was submitted in good faith. It held that fee-only Chapter 13 plans are per se submitted in bad faith. P elected to convert his case to Chapter 7. Berliner moved the bankruptcy court to award him $2,872 in fees and expenses arising from his representation of the debtor in the Chapter 13 proceedings. The bankruptcy court awarded only $299 (the amount that it cost to file the debtor's converted Chapter 7 petition). This required Berliner to disgorge more than $200. The court grounded its order on the proposition that an attorney is not entitled to professional fees for time spent preparing a Chapter 13 plan that he knows or has reason to know is submitted in bad faith. The district court affirmed the disputed order. Berliner appealed.