In re Sanchez, Oregon Bankruptcy Court Case No. 07-62144-aer13
PUBLISHED opinion by Judge Albert Radcliffe
March 19, 2008
Judge Radcliffe goes against what he characterizes as the “slight majority view,” holding that BAPCPA’s new “equal monthly payments” rule does not allow the expedited payment of attorney fees by providing for smaller “adequate protection payments” to a secured creditor followed by larger “equal monthly payments” later in the Plan. However, the judge does provide some clues, albeit of limited practical value, where some front-loading of debtors’ attorney fees might work.
The judge cites four bankruptcy courts in other circuits which have addressed this BAPCPA statutory construction question—apparently there are no circuit court opinions--and he sides with the one court favoring purchase money “910 days” secured creditor payments over debtors’ attorney fees, after detailing what he sees as the flaws in the three court opinions favoring the attorney fees. The judge’s analysis in rejecting the rationales of the three courts allowing expedited payments to attorney fees—each of which arrived at that conclusion slightly differently—is beyond our scope here.. He asserts generally that he is merely enforcing the plain language of the statutes while these other courts applied “strained interpretations.” Essentially, the 3 majority courts made statutory distinctions between post-confirmation “adequate protection” payments of § 1325(a)(5)(B)(iii)(I) and the “equal payments” of § 1325(a)(5)(B)(iii)(II), effectively allowing smaller “adequate protection” payments to continue after confirmation until debtors’ attorney fees were paid, after which the larger “equal payments” would begin and be paid through the rest of the Plan. But Judge Radcliffe, closely following In re Denton, 370 BR 441 (Bankr. S.D. Ga. 2007), argues that this is a false distinction, and thus that “pre-confirmation adequate protection payments under § 1326(a)(1)(C) may not be extended beyond confirmation when the monthly amount is less than the amount of payment on the allowed secured claim under the plan,” that is the “equal monthly” payment.
Judge Radcliffe finishes with a final footnote in which he throws debtors’ attorneys a bone, some clues, limited in practical value as they are, for successful expedited payment of debtors’ attorney fees. This footnote is worth quoting here in full:
“While this court’s holding may appear to undercut the speed at which a Chapter 13 debtor’s attorney’s fees may be paid, this isn’t necessarily so. The type of stepped payments Debtors propose are not per se, non-confirmable. A secured creditor may always accept its proposed treatment under § 1325(a)(5)(A). If the creditor objects to stepped payments, debtors are not precluded from making room for payment of attorney’s fees by modifying the plan to amortize the secured claim at a lower (but equal) monthly payment over a longer period. All that is required under § 1325(a)(5)(B)(iii) is that the proposed equal monthly payments pay the secured claim
and be sufficient to adequately protect the creditor’s interest. Here, while WFA has not contested that $50 per month adequately protects its interest, that amount is insufficient to amortize its claim, even over the maximum 60 months permitted.”
BOTTOM LINE: The judge’s suggestions notwithstanding, this opinion significantly limits debtors’ attorneys in front-loading their fees ahead of “910 day” secured creditors. Assuming the other Oregon judges will be following his opinion, and until there is a contrary ruling in the 9th Circuit or possibly a persuasive opinion in another Circuit, in many Ch. 13 cases debtors’ attorneys will be paid slower and thus with greater risk of not being paid at all.
The judge cites four bankruptcy courts in other circuits which have addressed this BAPCPA statutory construction question—apparently there are no circuit court opinions--and he sides with the one court favoring purchase money “910 days” secured creditor payments over debtors’ attorney fees, after detailing what he sees as the flaws in the three court opinions favoring the attorney fees. The judge’s analysis in rejecting the rationales of the three courts allowing expedited payments to attorney fees—each of which arrived at that conclusion slightly differently—is beyond our scope here.. He asserts generally that he is merely enforcing the plain language of the statutes while these other courts applied “strained interpretations.” Essentially, the 3 majority courts made statutory distinctions between post-confirmation “adequate protection” payments of § 1325(a)(5)(B)(iii)(I) and the “equal payments” of § 1325(a)(5)(B)(iii)(II), effectively allowing smaller “adequate protection” payments to continue after confirmation until debtors’ attorney fees were paid, after which the larger “equal payments” would begin and be paid through the rest of the Plan. But Judge Radcliffe, closely following In re Denton, 370 BR 441 (Bankr. S.D. Ga. 2007), argues that this is a false distinction, and thus that “pre-confirmation adequate protection payments under § 1326(a)(1)(C) may not be extended beyond confirmation when the monthly amount is less than the amount of payment on the allowed secured claim under the plan,” that is the “equal monthly” payment.
Judge Radcliffe finishes with a final footnote in which he throws debtors’ attorneys a bone, some clues, limited in practical value as they are, for successful expedited payment of debtors’ attorney fees. This footnote is worth quoting here in full:
“While this court’s holding may appear to undercut the speed at which a Chapter 13 debtor’s attorney’s fees may be paid, this isn’t necessarily so. The type of stepped payments Debtors propose are not per se, non-confirmable. A secured creditor may always accept its proposed treatment under § 1325(a)(5)(A). If the creditor objects to stepped payments, debtors are not precluded from making room for payment of attorney’s fees by modifying the plan to amortize the secured claim at a lower (but equal) monthly payment over a longer period. All that is required under § 1325(a)(5)(B)(iii) is that the proposed equal monthly payments pay the secured claim
and be sufficient to adequately protect the creditor’s interest. Here, while WFA has not contested that $50 per month adequately protects its interest, that amount is insufficient to amortize its claim, even over the maximum 60 months permitted.”
BOTTOM LINE: The judge’s suggestions notwithstanding, this opinion significantly limits debtors’ attorneys in front-loading their fees ahead of “910 day” secured creditors. Assuming the other Oregon judges will be following his opinion, and until there is a contrary ruling in the 9th Circuit or possibly a persuasive opinion in another Circuit, in many Ch. 13 cases debtors’ attorneys will be paid slower and thus with greater risk of not being paid at all.
By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys, Andy@BLSforAttorneys.com
© 2008 Bankruptcy Litigation Support for Attorneys
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