Debtor’s Attorney Fees Were Properly Paid
Before Creditors in Chapter 13
I
n confirming the debtor’s chapter
13 plan, the bankruptcy court noted
that “[a] debtor’s attorney fees are
considered to be administrative priority
claims and have priority above other
claims . . . [under section] 507(a)(2).” In
re Amaya, No. 17-70280 (Bankr. S.D.
Tex. April 11, 2018). paying administrative claims prior to
distributing funds, pro rata, to creditors
violates the equal monthly payment
requirement of section 1325(a)(5)(B)
(iii)(I).” Second, Propel argued that
the plan did not appropriately address
disposition of its lien in the event of
dismissal or conversion.
In Evette Amaya’s chapter 13
bankruptcy, Propel Financial Services,
LLC., filed a proof of claim in the
amount of $25,303.63 secured by a
tax lien on Ms. Amaya’s homestead.
Ms. Amaya proposed a plan providing
for two monthly payments in the
amount of $1,100, and the remaining
fifty-eight monthly payments in the
amount of $1,200.
The plan specified
that
both
Ms.
Amaya’s counsel,
to whom she owed
$2,968.00
and
Propel would be
paid pro rata from
month one through
month fifty eight
of the plan. The
plan also provided
that, subject to
disposition of an
avoidance motion,
secured creditors
would retain their
liens. The trustee had her own internal
distribution procedures under which
she would pay Ms. Amaya’s counsel
prior to other creditors. The court noted that the requirements
for plan confirmation under section
1325 are distinct from the trustee’s
obligations under section 1326 and
that administration of chapter 13 plans
is necessarily flexible. The trustee
“must balance her directives under
the Code and make distributions
in accordance with the terms of
entire course of the plan. Under these
two provisions, the court concluded
that the trustee complied with the Code
in paying the debtor’s attorney before
commencing payments to Propel.
The fact that plan payments were to be
made to Propel on a “pro rata” basis
rather than in specified fixed amounts,
also did not violate the equal monthly
payments requirement where Ms.
Amaya’s contributions were in equal
monthly installments “of $1,100.00 and
$1,200.00, respectively” and payments
to Propel were not subject to change
over the course of the plan.
The court turned next to Propel’s
contention
that
the
language in the plan
concerning
retention
of liens by secured
creditors did not satisfy
section 1325(a)(5)(B)(i)
(II)’s requirement that
the plan provide for a
creditor to retain a lien
in accordance with non-
bankruptcy law in the
event that the bankruptcy
case is dismissed or
converted. The court
found that though the
language in the plan did
not track the statutory
language, it was sufficient to achieve
the same result.
The court therefore overruled Propel’s
objection and confirmed Ms. Amaya’s
plan.
“In Evette Amaya’s chapter 13
bankruptcy, Propel Financial
Services, LLC., filed a proof of
claim in the amount of $25,303.63
secured by a tax lien on Ms.
Amaya’s homestead.”
Propel objected to confirmation on two
bases. First Propel argued that the
“plan proposal to pay Propel’s claim
with interest, pro rata over a period
of 58 months rather than in fixed,
equal monthly payments from month
one, coupled with Trustee’s policy of
26
CONSUMER BANKRUPTCY JOURNAL
a confirmed plan.” Under section
1326(b), priority administrative claims,
such as the debtor’s counsel fees,
were appropriately paid before or
in conjunction with other creditors.
Furthermore, citing its sister court in In
re DeSardi, 340 B.R. 790, 808 (Bankr.
S.D. Tex. 2006), the court found that
once monthly payments to creditors
are commenced they must be equal
until they cease but that such fixed
payments need not extend over the
Spring 2018
Amaya Bankr SD Tex opinion April
2018
National Association of Consumer Bankruptcy Attorneys