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Full Opinion
United States Court of Appeals
For the First Circuit
No. 11-1831
IN RE WAYNE ERIC PUFFER,
Debtor.
_____________________
L. JED BERLINER,
Movant, Appellant,
v.
DENISE M. PAPPALARDO,
Trustee, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Michael A. Ponsor, U.S. District Judge]
[Hon. Henry J. Boroff, U.S. Bankruptcy Judge]
Before
Selya, Circuit Judge,
Souter,* Associate Justice,
and Lipez, Circuit Judge.
L. Jed Berliner, with whom Meghan R. Bristol and Berliner Law
Firm were on brief, for appellant.
David G. Baker on brief for National Association of Consumer
Bankruptcy Attorneys, amicus curiae.
Lynne F. Riley, with whom Riley Law Group LLC was on brief,
for appellee.
*
Hon. David H. Souter, Associate Justice (Ret.) of the Supreme
Court of the United States, sitting by designation.
March 22, 2012
SELYA, Circuit Judge. This bankruptcy case involves a
dispute over attorneys' fees. Resolving this dispute requires us
to address a question of first impression at the appellate level
concerning the propriety of so-called "fee-only" plans in Chapter
13 bankruptcy cases. This is an issue that has divided the
bankruptcy courts. Compare In re Paley, 390 B.R. 53, 59 (Bankr.
N.D.N.Y. 2008) (rejecting fee-only plan as contrary to spirit and
purpose of Bankruptcy Code), and In re Dicey, 312 B.R. 456, 459-60
(Bankr. D.N.H. 2004) (same), with In re Elkins, No. 09-09254-8,
2010 WL 1490585, at *3 (Bankr. E.D.N.C. Apr. 13, 2010) (stating
that "[t]here are many permissible reasons to file [fee-only]
chapter 13 cases"), and In re Molina, 420 B.R. 825, 829-33 (Bankr.
D.N.M. 2009) (upholding good faith of fee-only plan). The
bankruptcy court in this instance concluded that such plans are per
se proffered in bad faith and disallowed virtually all attorneys'
fees. On an intermediate appeal, the district court upheld the
bankruptcy court's ruling.
The matter has now been appealed to this court. We have
had the benefit of briefing (including the helpful submission of an
amicus) and oral argument. After careful consideration, we hold
that fee-only plans are not per se in bad faith. Consequently, we
reverse the order appealed from and remand for further proceedings
consistent with this opinion.
-3-
The background facts are easily stated. The debtor,
Wayne Eric Puffer, had amassed unsecured liabilities totaling
almost $15,000. His anticipated disposable income amounted to
approximately $100 per month. He concluded that he could never
satisfy his increasingly impatient creditors and decided to
consider the advisability of bankruptcy protection. With this in
mind, he visited the appellant, L. Jed Berliner, an attorney
specializing in bankruptcy matters, in January of 2007.
After some discussion, the appellant presented the debtor
with two options. First, he could file for straight bankruptcy
under Chapter 7, which is the conventional course when an
individual has debts that dwarf his income and assets. See 11
U.S.C. §§ 701-784. Chapter 7 proceedings are straightforward; they
usually can be concluded within a matter of months. A successful
Chapter 7 application discharges virtually all debts, including any
unpaid legal fees. See id. § 727.
The second option that the appellant presented to the
debtor was somewhat less conventional. He suggested that the
debtor could file for Chapter 13 protection. See id. §§ 1301-1330.
Chapter 13 proceedings must be kept open for a minimum of 36 months
unless all affected debts are to be fully satisfied within a
shorter period of time. See id. § 1325(b)(4). If successful, a
Chapter 13 proceeding allows a debtor to discharge his debts over
time, provided that he submits a plan, which must be approved by
-4-
the bankruptcy court, for satisfying some of his creditors. See
id. §§ 1321-1322, 1328.
The appellant stated in substance that he would not
represent the debtor in a Chapter 7 proceeding unless and until the
debtor paid him, up front, the whole of his anticipated legal fees
(which he estimated to be around $2,300). If, however, the debtor
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. The appellant estimated that the
fees associated with a Chapter 13 proceeding would total $4,100.
At that moment, the debtor did not have sufficient funds
on hand to pay the legal fees requested for a Chapter 7 filing.
Faced with the appellant's unwillingness to handle a Chapter 7
matter, the debtor opted to seek Chapter 13 protection, engaged the
appellant as his counsel for this purpose, and paid him $500 on
account.
The debtor, counseled by the appellant, prepared the
necessary paperwork. As part of that paperwork, he submitted a
Chapter 13 plan to the bankruptcy court. See id. §§ 1321-1322.
The plan called for the debtor to pay into the bankruptcy estate
$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
-5-
debtor) would be available for distribution to general creditors.1
Conversely, the appellant 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. See id.
§ 1326(b)(2). A Chapter 13 plan of this genre is colloquially
known as 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 proposed Chapter 13
plan on the grounds that neither the debtor's Chapter 13 petition
nor the plan itself was submitted in good faith. See id.
§ 1325(a)(3), (7).2 In reaching this conclusion, the court cited
In re Buck, 432 B.R. 13, 21-22 (Bankr. D. Mass. 2010), which held
that fee-only Chapter 13 plans are per se submitted in bad faith.
After rejecting the Chapter 13 plan, the bankruptcy court
gave the debtor three options: he could (i) amend his Chapter 13
plan; (ii) convert his bankruptcy case to Chapter 7; or (iii)
dismiss the case entirely. The debtor elected the second option
1
The record does not contain a reliable estimate of what the
creditors would have received if a Chapter 7 proceeding had been
initiated at this point.
2
Although the courts below found both the petition and the
plan to have been filed in bad faith, for simplicity's sake we
henceforth refer only to the plan. Our holding is, of course,
equally applicable to the filing of the petition.
-6-
and converted his case to Chapter 7. He ultimately received a
discharge under that chapter.
Meanwhile, the appellant 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. See 11
U.S.C. § 330(a)(4)(B). The appellant anticipated that this
emolument would be paid out of the Chapter 13 estate, which the
debtor had endowed monthly from the filing of the Chapter 13 plan
until the date of the conversion to Chapter 7. The bankruptcy
court awarded the appellant only $299 (the amount that it cost to
file the debtor's converted Chapter 7 petition). Because the
appellant had already collected a $500 retainer in advance of the
filing of the Chapter 13 petition, this order effectively required
him 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. See In re Buck, 432
B.R. at 22-24.
The appellant sought review of the fee order in the
district court. See 28 U.S.C. § 158(a). The trustee opposed the
appeal, and the district court affirmed the disputed order. This
timely second-level appeal followed.
We review a bankruptcy court's order directly without
reference to an intermediate affirmance by the district court. See
-7-
City Sanitation, LLC v. Allied Waste Servs. of Mass., LLC (In re
Am. Cartage, Inc.), 656 F.3d 82, 87 (1st Cir. 2011). In performing
this task, we assay the bankruptcy court's conclusions of law de
novo, Donarumo v. Furlong (In re Furlong), 660 F.3d 81, 86 (1st
Cir. 2011), its factual findings for clear error, id., and its
quantification of fees for abuse of discretion, Prebor v. Collins
(In re: I Don't Trust), 143 F.3d 1, 3 (1st Cir. 1998) (per curiam).
This is a rifle-shot appeal. It raises only a single
issue: the propriety vel non of the bankruptcy court's award of
fees to the appellant. But the bankruptcy court hinged that award
on its preludial ruling that fee-only Chapter 13 plans are per se
in bad faith. Consequently, we must start by considering whether
the bankruptcy court erred as a matter of law when it adopted that
per se rule.
The requirement that Chapter 13 plans be filed in good
faith springs directly from the Bankruptcy Code. See 11 U.S.C.
§ 1325(a)(3). The term "good faith" is not specially defined, and
the legislative history provides little insight into its meaning.
See In re Schaitz, 913 F.2d 452, 453 (7th Cir. 1990); Handeen v.
LeMaire (In re LeMaire), 898 F.2d 1346, 1348 (8th Cir. 1990) (en
banc). By like token, this court has had no occasion to demarcate
the contours of section 1325's good faith element. We have,
however, explicated "good faith" in the related context of a debtor
who attempts, pursuant to 11 U.S.C. § 706(a), to convert a Chapter
-8-
7 proceeding to Chapter 13. See Marrama v. Citizens Bank of Mass.
(In re Marrama) (Marrama I), 430 F.3d 474, 482 (1st Cir. 2005),
aff'd, Marrama v. Citizens Bank of Mass. (Marrama II), 549 U.S. 365
(2007).
In Marrama I, we measured good faith by applying a
totality of the circumstances test. Id. This test considered,
among other things, the veracity of the debtor's representations to
the court and an assessment of whether the debtor was abusing the
bankruptcy process. See id.; cf. Barbosa v. Soloman, 235 F.3d 31,
40 n.13 (1st Cir. 2000) (holding that under 11 U.S.C. § 1329, "lack
of good faith can be shown by manipulation of code provisions"
(internal quotation marks omitted)).
We believe that the totality of the circumstances
approach to adjudicating good faith should apply equally to
inquiries under section 1325. This belief is fortified by the fact
that other courts interpreting section 1325's "good faith" element
have performed a comparably holistic balancing of relevant factors.
See, e.g., Robinson v. Tenantry (In re Robinson), 987 F.2d 665, 668
& n.7 (10th Cir. 1993) (per curiam); In re LeMaire, 898 F.2d at
1348-49; Ohio Student Loan Comm'n v. Doersam (In re Doersam), 849
F.2d 237, 239 (6th Cir. 1988); Sullivan v. Solimini (In re
Sullivan), 326 B.R. 204, 211-12 (B.A.P. 1st Cir. 2005).
The totality of the circumstances test cannot be reduced
to a mechanical checklist, and we do not endeavor here to canvass
-9-
the field and catalogue the factors that must be weighed when
determining whether a debtor has submitted a Chapter 13 plan in
good faith. Cf. Marrama II, 549 U.S. at 375 n.11 (declining to
articulate the precise contours of "good faith" in an analogous
context). But we, like other courts, are reluctant to read per se
limitations into section 1325's good faith calculus. See Johnson
v. Vanguard Holding Corp. (In re Johnson), 708 F.2d 865, 868 (2d
Cir. 1983) (per curiam) (collecting cases). After all, Congress
has legislated nine requirements that must be met before a Chapter
13 plan can be confirmed, see 11 U.S.C. § 1325(a)(1)-(9), and we do
not think that it is our province to insist upon a tenth.
In all events, good faith is a concept, not a construct.
Importantly, it is a concept that derives from equity. See Fields
Station LLC. v. Capitol Food Corp. of Fields Corner (In re Capitol
Food Corp. of Fields Corner), 490 F.3d 21, 24 n.1 (1st Cir. 2007);
Rivera-Lopez v. Mun'y of Dorado, 979 F.2d 885, 887 (1st Cir. 1992).
This matters because equitable concepts are peculiarly
insusceptible to per se rules. See Johnson v. Spencer Press of
Me., Inc., 364 F.3d 368, 383 (1st Cir. 2004); see also Rosario-
Torres v. HernĂĄndez-ColĂłn, 889 F.2d 314, 321 (1st Cir. 1989) (en
banc) (stating that "the hallmark of equity is the ability to
assess all relevant facts and circumstances and tailor appropriate
relief on a case by case basis").
-10-
Against this backdrop, we reject the bankruptcy court's
holding that fee-only Chapter 13 plans are per se in bad faith.
This is not to say, however, that we disregard the bankruptcy
court's concerns. The fundamental purpose undergirding Chapter 13
is to allow a debtor to pay his creditors over time, Thompson v.
Gen. Motors Acceptance Corp., 566 F.3d 699, 706-07 (7th Cir. 2009);
Metro Emps. Credit Union v. Okoreeh-Baah (In re Okoreeh-Baah), 836
F.2d 1030, 1033 (6th Cir. 1988), and fee-only plans, by definition,
leave the vast majority of debts unsatisfied. Moreover, fee-only
arrangements may be vulnerable to abuse by attorneys seeking to
advance their own interests without due regard for the interests of
debtors; and such plans, by their very nature, create that
appearance.
Notwithstanding these shortcomings, endorsing a blanket
rule that fee-only Chapter 13 plans are per se submitted in bad
faith would be to throw out the baby with the bathwater. While
fee-only plans should not be used as a matter of course, there may
be special circumstances, albeit relatively rare, in which this
type of odd arrangement is justified. Given this possibility,
prudence dictates that we hew to the overarching principle that the
presence or absence of good faith should be ascertained case by
case. See, e.g., Marrama I, 430 F.3d at 482.
Let us be perfectly clear. This opinion should by no
means be read as a paean to fee-only Chapter 13 plans. The dangers
-11-
of such plans are manifest, and a debtor who submits such a plan
carries a heavy burden of demonstrating special circumstances that
justify its submission. Cf. Hardin v. Caldwell (In re Caldwell),
895 F.2d 1123, 1126 (6th Cir. 1990) (explaining that "[t]he party
who seeks a discharge under Chapter 13 bears the burden of proving
good faith").
On the record before us, we cannot tell whether or not
special circumstances sufficient to justify a fee-only Chapter 13
plan existed here. The appellant argues that such circumstances
did exist, but we are chary about his explanation. The appellant
suggests that the debtor filed a fee-only Chapter 13 plan because
that was the only means of securing the appellant's representation.
There is no showing, however, that the debtor had a pressing need
for the appellant's services, that he could not secure adequate
representation that he could afford without resorting to a fee-only
plan, or that it was infeasible to proceed pro se.3 Furthermore,
the debtor himself asserted that he could have retained the
appellant for representation in Chapter 7 â a course usually more
in line with the interests of the debtor, the creditors, and the
bankruptcy court â if he had waited three months longer; and the
3
We do not mean to imply that any of these factors are
necessary to a finding of special circumstances. Rather, we
enumerate them to illustrate why we are unready to accept the
conclusory claim of special circumstances advanced by the appellant
here.
-12-
record contains no compelling reason why a three-month wait would
have been intolerable.
This tees up the issue on appeal: the propriety of the
bankruptcy court's fee award. While bankruptcy courts have broad
discretion in fashioning fee awards, In re: I Don't Trust, 143 F.3d
at 3, an award based on an error of law is invariably an abuse of
that discretion, see Goya Foods, Inc. v. Wallack Mgmt. Co., 290
F.3d 63, 75 (1st Cir. 2002).
In the case at hand, the bankruptcy court did not
consider the totality of the circumstances when measuring whether
the debtor's Chapter 13 plan was presented in good faith. Instead,
it mistakenly concluded that fee-only Chapter 13 plans are per se
filed in bad faith and fashioned the fee award on that premise.
Thus, the fee award rested on a legal error and must be vacated.
See, e.g., Aronov v. Napolitano, 562 F.3d 84, 88 (1st Cir. 2009)
(en banc); Correa v. Cruisers, a Div. of KCS Int'l, Inc., 298 F.3d
13, 30-34 (1st Cir. 2002).
What remains to be done is for the bankruptcy court to
reconsider, under the proper legal regime, the question of the
appellant's entitlement to fees and to issue a new order in that
regard. We take no view as to the amount of fees, if any, that
should be awarded.
-13-
We reverse the order appealed from and remand to the district court
with instructions to vacate the bankruptcy court's fee order and
remand to that court for further proceedings consistent with this
opinion. All parties shall bear their own costs.
â Concurring Opinion Follows â
-14-
LIPEZ, Circuit Judge, concurring in the judgment.
I.
The issue of fee-only Chapter 13 petitions has emerged in
recent years largely as a result of two events. The first was the
Supreme Court's decision in Lamie v. U.S. Tr., 540 U.S. 526 (2004),
which held that attorney's fees are not payable from estate funds
in a Chapter 7 proceeding except in limited circumstances. Id. at
538-39 (construing 11 U.S.C. § 330(a)(1)). Attorneys who advise
debtors on Chapter 7 filings thus may be unable to collect their
fees once the plans are in place, prompting them to request payment
in full up front. The second event was enactment of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), see
11 U.S.C. §§ 101-1532, which tightened the eligibility requirements
for Chapter 7 bankruptcy and made the process more complicated --
increasing the need for legal advice and, in turn, the cost of
filing for bankruptcy. See In re Beck, 2007 Bankr. LEXIS 517, at
*7 (D. Kan. Feb. 21, 2007) (referring to the "significantly
increased burdens" placed on debtors' attorneys after BAPCPA);
Angela Litwin, The Affordability Paradox: How Consumer Bankruptcy's
Greatest Weakness May Account for Its Surprising Success, 52 Wm. &
Mary L. Rev. 1933, 1935-37 (2011) (hereinafter The Affordability
Paradox) (noting that the BAPCPA "made consumer bankruptcy more
-15-
expensive for all debtors" and that "one of BAPCPA's major effects
was a rise in the cost of representation").4
As I understand it, the fee-only Chapter 13 petition can
be a creative solution for the "Lamie problem." See, e.g., In re
Buck, 432 B.R. 13, 22 n.15 (Bankr. D. Mass. 2010) (noting that
Lamie "exacerbated the problem" of debtors' inability to afford
attorney's fees); In re Johnson, 397 B.R. 486, 489-90 (Bankr. E.D.
Cal. 2008) (noting "the problem of the puzzle lying in the wake of
the Lamie holding"). As a high priority expense under Chapter 13,
attorney's fees may properly be scheduled for payment in a Chapter
13 plan ahead of other types of debts. See generally Michelle
Arnopol Cecil, A Reappraisal of Attorneys' Fees in Bankruptcy, 98
Ky. L.J. 67, 73-74, 84 (2009) (citing Lamie, 540 U.S. at 537); 11
U.S.C. § 330(a)(4)(B). At least some debtors who cannot afford an
attorney-assisted Chapter 7 filing -- because the attorney,
understandably, would expect to be paid up front -- can afford to
4
In The Affordability Paradox, Professor Litwin stated that
"the heart" of BAPCPA was "the means test that bars relatively
well-off debtors from Chapter 7." She went on to note, however,
that
BAPCPA also subjected all filers to increased paperwork,
stricter deadlines, new prerequisites such as credit
counseling, and mandatory dismissals for myriad
procedural mistakes. These new technical requirements
caused many commentators to worry that the statute's real
effect would be to increase costs and reduce the
bankruptcy access of all debtors, especially the worst
off.
52 Wm. & Mary L. Rev. at 1936 (footnotes omitted).
-16-
pay for an attorney to assist with a Chapter 13 filing because the
fee will be paid in post-petition installments. See Buck, 432 B.R.
at 22 n.15 (recognizing that "some debtors are simply not able to
afford the attorneys fees associated with filing a Chapter 7
case"). That approach results, of course, in the situation we face
in this case: the debtor is in such bad shape that he is eligible
to file for an immediate discharge of his debts under Chapter 7,
but he files under Chapter 13 with his attorney's fees as the only
(or dominant) debt scheduled to be paid over the course of the
Chapter 13 plan (which typically runs three to five years).
Like my colleagues, I think that the totality of the
circumstances test is the appropriate method to evaluate whether a
particular fee-only Chapter 13 plan meets the good-faith
requirements of the Bankruptcy Code. At this juncture, however, I
would leave application of the test entirely to bankruptcy judges
instead of prescribing a rule requiring "special circumstances"
limited to "relatively rare" instances. As the majority notes, the
bankruptcy courts have expressed mixed views on fee-only plans as
their experience accumulates in the wake of Lamie and BAPCPA's
enactment. We should allow that process to continue so that we
have an adequate basis for deciding whether there is a need to
construct an appellate rule disfavoring such plans in every case.
Presently, I do not think we have that basis.
-17-
II.
We have observed that the Bankruptcy Code's purposes are
two-fold: to give the deserving debtor a fresh start and to
maximize the payment to creditors. See In re Cunningham, 513 F.3d
318, 324 (1st Cir. 2008) ("The Supreme Court has stated that 'a
central purpose of the Bankruptcy Code is to provide a procedure by
which certain insolvent debtors can reorder their affairs, make
peace with their creditors, and enjoy 'a new opportunity in life
and a clear field for future effort, unhampered by the pressure and
discouragement of preexisting debt.'" (quoting Grogan v. Garner,
498 U.S. 279, 286 (1991))); In re Marrama, 430 F.3d 474, 477 (1st
Cir. 2005) (noting "the principle that all the debtor's assets are
to be gathered and deployed in a bona fide effort to satisfy valid
claims"); In re Sullivan, 326 B.R. 204, 211-12 (1st Cir. BAP 2005)
(stating that a primary objective of bankruptcy is "to relieve the
honest but unfortunate debtor from the weight of oppressive
indebtedness, allowing the debtor to start afresh"). A fee-only
Chapter 13 plan may accomplish little toward the goal of satisfying
creditors, but such a plan may nonetheless be essential to free
"the honest but unfortunate debtor" from intolerable circumstances.
Bankruptcy judges evaluating a particular fee-only plan
may properly take into account whether the plan "is consistent with
the spirit and purpose of [Chapter 13] -- rehabilitation through
debt repayment," In re Molina, 420 B.R. 825, 831 (Bankr. D.N.M.
-18-
2009) (quoting In re Paley, 390 B.R. 53, 58 (Bankr. N.D.N.Y. 2008))
-- but I fear that circumscribing the totality of the circumstances
assessment with the requirement of special circumstances will in
practical effect impose on debtors the more daunting task of
disproving bad faith rather than proving good faith. I am
therefore reluctant to confine what should be, in the majority's
apt words, a "holistic balancing of relevant factors."
I must emphasize that I agree with my colleagues' view
that a Chapter 13 plan calling for payment of the debtor's
attorney's fee, but none (or virtually none) of the outstanding
debts that triggered the need for bankruptcy, warrants close
examination. The typical attorney's fee for a Chapter 13 case is
higher than the fee for a typical Chapter 7 case, see, e.g., In re
Elkins, 2010 Bankr. LEXIS 1085, at **4-5 (Bankr. E.D.N.C. April 13,
2010), and there undoubtedly are costs imposed on the bankruptcy
system as a whole when a debtor eligible for Chapter 7 relief
prolongs the bankruptcy process by filing a Chapter 13 plan for the
sole purpose of paying attorney's fees. Moreover, as the majority
observes, the fee-only structure may leave unknowledgeable debtors
vulnerable to attorneys seeking to maximize their compensation.
See Kerry Haydel Ducey, Note, Bankruptcy, Just for the Rich? An
Analysis of Popular Fee Arrangements for Pre-Petition Legal Fees
and a Call to Amend, 54 Vand. L. Rev. 1665, 1703 (2001)
(hereinafter Just for the Rich?) (noting that, "[i]n some cases,
-19-
self interest . . . compels the attorney to advise debtors to file
Chapter 13 or other high percentage payment plans when Chapter 7
would actually better serve the debtor" (footnote omitted)).
Nonetheless, we must keep in mind that a struggling
debtor who lacks the resources to pay a Chapter 7 attorney's fee up
front has limited options. Although he theoretically could proceed
pro se, I doubt that bankrupt individuals will ordinarily be able
to navigate the complexities of the bankruptcy process on their
own. See, e.g., In re Beck, 2007 Bankr. LEXIS 517, at *19-20
(stressing the importance of counsel for debtors and noting that
the court "routinely" saw debtors giving away rights or property
they would be entitled to retain). Indeed, an empirical study
indicating that the percentage of pro se debtors has increased in
the aftermath of BAPCPA shows that such cases are not succeeding.
See The Affordability Paradox, 52 Wm. & Mary L. Rev. at 1938
("[T]he high pro se failure rate since 2005 suggests that it is
reasonable to equate the inability to afford a lawyer with having
less than full access to the bankruptcy system."); see also Just
for the Rich?, 54 Vand. L. Rev. at 1667 ("Legal counsel is
indispensable if a debtor is to effectively file for bankruptcy.
The bankruptcy laws are complex, and legal counsel is often crucial
in helping the debtor make an informed decision based on his unique
circumstances and the available alternatives." (citing William C.
Hillman, Personal Bankruptcy: What Every Debtor and Creditor Needs
-20-
to Know 20 (1993) ("Many mistakes people make by trying to do it on
their own often cannot be corrected later. Even the simplest
choices involve uncertainties and risks if you are not thoroughly
familiar with the law."))). Moreover, lawyers play an important
role in the bankruptcy system beyond their direct assistance to
clients. See In re Beck, 2007 Bankr. LEXIS 517, at *9-10 (noting
that pro se debtors increase the administrative costs for the
court); The Affordability Paradox, 52 Wm. & Mary L. Rev. at 2010
("At the most basic level, lawyers help the system run smoothly.").
A debtor could attempt to find cheaper, or free, legal
services, but I have no reason to think that counsel fees vary
widely or that competent bankruptcy legal advice is readily
available for free. See In re Beck, 2007 Bankr. LEXIS 517, at *21-
22 (noting the absence of evidence that "there are sufficient
attorneys available to file Chapter 7 cases pro bono, or for a
reduced rate"); In re Nieves, 246 B.R. 866, 873 (Bankr. E.D. Wis.
2000) ("This court fully recognizes that . . . debtors who cannot
afford to pay attorney's fees before filing for bankruptcy may have
difficulty in obtaining legal counsel."). We should have a better
understanding of critical facts like these before we fashion a rule
that may, in practical effect, make fee-only Chapter 13 plans
unavailable.
The majority notes that the debtor in this case stated
that he could have saved enough money in three months to pay
-21-
Chapter 7 fees, and they suggest that he should simply have waited
to file for relief. The debtor's assertion of future ability to
pay is certainly a factor to consider. For some debtors, however,
the press of creditors, and the resulting stress, would likely make
waiting intolerable. See, e.g., In re Molina, 420 B.R. at 829
(noting the debtor's "sincer[ity] in seeking chapter 13 relief
since stopping the garnishment and preserving her home and income
for herself and her grandson are critical for her"). In Hamilton
v. Lanning, 130 S. Ct. 2464, (2010), the Supreme Court quoted a
Chapter 13 treatise in noting the urgency of some bankruptcy
filings:
"Potential Chapter 13 debtors typically find a
lawyer's office when they are one step from
financial Armageddon: There is a foreclosure
sale of the debtor's home the next day; the
debtor's only car was mysteriously repossessed
in the dark of last night; a garnishment has
reduced the debtor's take home pay below the
ordinary requirements of food and rent.
Instantaneous relief is expected, if not
necessary."
Id. at 2476 (quoting K. Lundin & W. Brown, Chapter 13 Bankruptcy
§ 3.1[2] (4th ed. 2009)); see also The Affordability Paradox, 52
Wm. & Mary L. Rev. at 1938 ("Every month a debtor spends saving up
for an increasingly expensive bankruptcy lawyer is a month in which
she has lost substantive bankruptcy rights for procedural
reasons.").
It may turn out that balanced assessments will, in fact,
result in designating a relatively small number of fee-only plans
-22-
as filed in good faith. Such plans may be flawed by circumstances
beyond the fact that they propose payment of only attorney's fees,
or fees and a minimal amount of secured debt. In In re Buck, for
example, the bankruptcy court expressed concern about the
unrealistic budgets underlying the plans. 432 B.R. at 21.
Similarly, in In re Paley, 390 B.R. 53 (Bankr. N.D.N.Y. 2008), the
two debtors proposed plans of limited duration despite the longer
commitment expected under Chapter 13. Id. at 59 ("A plan whose
duration is tied only to payment of attorney's fees simply is an
abuse of the provisions, purpose, and spirit of the Bankruptcy
Code."); see also In re Arlen, 461 B.R. 550, 555-56 (Bankr. W.D.
Mo. 2011) (noting that the court's finding that the proposed plans
were not in good faith was linked "to the failure of the Debtors'
plans to comply with the applicable commitment period"); In re
Lavilla, 425 B.R. 572, 578 (Bankr. E.D. Cal. 2010) (noting that the
Paley court "had little difficulty finding that the debtors, who
had the ability but not the intent to fund a meaningful chapter 13
plan, were not acting in good faith" because "[t]he brevity of
their plans indicated that they were merely disguised chapter
7's"). Yet the National Association of Consumer Bankruptcy
Attorneys, as amicus, asserts that its members "have routinely had
fee-only plans confirmed," indicating that many such plans would
satisfy the good-faith requirement if not rejected solely based on
their fee-only characteristic.
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In sum, in declining to fully join my colleagues'
approach, I do not question the need for caution in evaluating fee-
only Chapter 13 plans. My concern is that a circumscribed totality
of the circumstances analysis will unnecessarily, and perhaps
unfairly, tilt the analysis against well meaning debtors. The
experience thus far suggests that bankruptcy courts are able to
draw distinctions between fee-only plans that comply with the
Bankruptcy Code, including the good-faith requirement, and those
that do not. Hence, unless further experience shows otherwise, I
think we can be confident that the goals of Chapter 13 will be
amply protected when the totality of the circumstances test is
thoughtfully applied, without threshold limitation, by bankruptcy
judges.
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