Prepared by Lucretia Scruggs, Esq. with Shapiro Pendergast & Hasty serving Georgia
In December 2016, when Bankruptcy Rule 3002.1 was enacted, the mortgage industry worried about the increase in administrative work and the cost of noticing and keeping track of fees and expenses while a borrower was in bankruptcy. The rule appeared to be quite simple: the fees and costs the debtor incurred were to be noticed with the court within 180 days of their incurrence. There were already in place industry standards of what the usual fees would be, so no one truly believed that this would cause concerns or that many of the Post-Petition Fee Notices would be objected to. Additionally, the Note and/or Security Deed usually contain a provision that allows for the collection of bankruptcy post-petition fees. Only a few years later are we learning that this is not the case.
In the Middle and Southern Districts of Georgia, the courts are showing that they are not generally amenable to “industry standards” being accepted. Counsel for the creditor cannot simply argue that the reasonability of the fees is solely based on what most in the industry charge or that the loan documents contain a provision that allows for the collection of fees. We have seen this play out more aggressively in the Middle District of Georgia, where the Trustee is responsible for paying the Post-Petition Fee Notices. In Athens, Debtors’ attorneys are subject to having their fees reduced if “unreasonable fees” are not objected. In re Riley, 2019 U.S. App. LEXIS 14178 (5th Cir. La., May 13, 2019), the court holds that the fee matrix providing for the Allowable Bankruptcy Attorney Fees from Fannie Mae, as the basis for the industry standard, does not meet the burden of proof and does not in and of itself support the charge being passed to the debtor. The court looked to the standard from In re Brumley 570 B.R. 287, 289 (Bankr. W.D. Mich 2017), which was applied in the Southern District in In re Trudelle, No. 16-60382-EJC, 2017 Bankr. LEXIS 3339 (Bankr. S.D. Ga. Sep. 29, 2017). The standard is that the creditor has the burden of proof to demonstrate that the fees are reasonable. The view of the court is that reviewing a plan review or proof of claim is not a matter of the unique complexity and can often be done by staff or a junior attorney at a rate afforded for a junior associate in the jurisdiction. It is also important to note that the equity requirement of 11 U.S.C §506 plays a role in these decisions.
The creditors and their attorneys must consider the nuances of each district before moving forward with filing of Post-Petition Fee Notices. We have found that it is more costly and time-consuming to have to file and then either withdraw, amend, or defend a Post-Petition Fee Notice, than taking into consideration the atmosphere of the venue from the beginning. It is our recommendation that plan reviews include advisement on what the recoverability of plan review and proof of claim fees are for a specific case. It is not an issue that can be taken for granted. If you have any questions or require assistance with navigating the complexities of the bankruptcy filings in Georgia, please contact Lucretia Scruggs, a bankruptcy attorney at Shapiro Pendergast & Hasty, LLC (firstname.lastname@example.org; 770-220-2535 - Ext. 2328).
This blog post is provided for educational and informational purposes only and is not intended and should not be construed as legal advice or used as a substitute for competent legal advice. By using this information, you understand that there is no attorney-client relationships between you and the author of this post.