Notes From Aki Koyama on Getting Paid in a Chapter 13 that gets Converted to Chapter 7

If you are planning to convert your client’s case to chapter 7 prior to the confirmation hearing, make sure you file a fee application and have the order entered before the notice of conversion is filed if you want to be paid post petition. If you don’t, the balance on hand the trustee is holding will probably be refunded in full to your client. This is caused by the SCOTUS ruling in Harris v. Viegelahn.

The dismissal scenario is covered by LBR 3015-1 (v)(7). So long as a RARA is filed prior to dismissal of the case, any post petition fees owed pursuant to the RARA will be paid to the attorney of record.  The LBRs in this scenario would have the same force and effect as a general order. In essence, the order approving your fee pursuant to the RARA is effective as soon as you file the case should the case be dismissed. Therefore, the order would precede the dismissal of the case.

The section that governs where plan payments go after dismissal is governed by 1326(a)(2) – “A payment made under paragraph (1)(A) shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable.  If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors pursuant to paragraph (3) to the debtor, after deducting any unpaid claim allowed under section 503 (b).”

You’ll notice that this subsection specifically authorizes payment of administrative expenses which also cover your post petition attorneys fees. That’s why the combination of your RARA which is your fee application and the LBR authorizing payment pursuant to the RARA if a case is dismissed works so well.

I’ll try to put together a stream lined fee application based on the filing of the RARA for the bar as a stop gap measure.  We are working on a revision to the LBRs to resolve this issue but the LBRs are only revised once a year so there will be a wait.

For those cases where your client decides to convert the case, I would ask the judge for a continuance so that you can file your fee application.  For those situations where the conversion cannot be delayed – you may have to make a separate agreement with your client. I would revise your retainer agreement to cover this situation NOW.

For our office, if the case is being converted for good reason, we have a stipulation form that you can use to get an order ASAP. I will make this available at the CDCBAA Seminar this Saturday.

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