Shorb v. Bishop (In Re Shorb)

101 B.R. 185, 1989 WL 76111

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: July 11, 1989
• Docket: Bankruptcy No. 87-06585, BAP No. WW 88-1103-JAsR
• Status: Published

Opinions

OPINION

ASHLAND, Bankruptcy Judge:

The debtor Douglas Shorb appeals the bankruptcy court’s order approving and determining the method of payment of his attorney’s fees.

FACTS

Subsequent to filing a Chapter 13 petition, the debtor filed a three year plan. The plan contained provisions calling for payment of the debtor’s attorney’s fees in accordance with § 1326 of the Bankruptcy Code, and required payment to priority creditors in advance of general unsecured creditors.

Celeste Bishop, the debtor’s ex-spouse, objected to the confirmation of the plan. She holds a judgment against the debtor. At the confirmation hearing, the court denied the debtor’s three year plan but stated that the court would confirm a five year plan. At that time, the debtor orally modified the plan to five years, and the court confirmed the plan.

After the confirmation of the plan, the debtor’s attorney filed a motion for compensation of attorney's fees. He requested $4,508 less $1,400 he received before bankruptcy for the net amount of $3,108. The bankruptcy court approved the compensation, but the order provided that the attorney would not be paid for a period of six months during which time the unsecured creditors would be paid. In addition, the court ordered the payment to be at the rate of $125 per month, which was contrary to the provision included in the plan.

The debtor appeals the bankruptcy court’s order contending that §§ 507(a)(1) and 1326(b)(1) require his attorney’s fees to be paid in advance of unsecured creditors of the estate.

ISSUE

Whether the bankruptcy court erred in ordering an administrative claim, attorney’s fees, to be paid after the payment of unsecured creditors in a Chapter 13 case.

DISCUSSION

The issue in this case requires an interpretation of 11 U.S.C. § 1326(b). Statutory interpretation is reviewed de novo. Sierra Switchboard Co. v. Westinghouse Electric Corp., 789 F.2d 705, 707 (9th Cir.1986).

The debtor contends that his attorney’s fees are an administrative claim which must be paid before payment to creditors pursuant to § 1326. He further refers to the section in the plan which provides for the advance payment of the attorney’s fees.

Section 1326(b)(1) of the Bankruptcy Code provides that:

before or at the time of each payment to creditors under the plan, there shall be paid any unpaid claim of the kind specified in section 507(a)(1) of this title.

This section clearly requires the payment of administrative expenses to be made before or contemporaneously with the payments to other creditors. The use of the word “shall” makes such payment mandatory.

The legislative history to § 1326 also supports that interpretation by stating:

Section 1326 supplements the priorities provisions of section 507. Subsection (a) requires accrued costs of administrative and filing fees, as well as fees due to the Chapter 13 Trustee, to be disbursed before payments to the creditors under the plan. S. REP. No. 95-989 95th Cong. 2d Sess 142 (1978).

The legislative history specifically refers to the payment of the trustee’s fees, but included among administrative expenses are reasonable attorney’s fees for services rendered. See § 503(b). Therefore, attorney’s fees must be paid before or contemporaneously with the other creditors under § 1326.

The cases that address this issue also support such a reading of the Code. See In re Tenney, 63 B.R. 110 (Bankr.W.D.Okla.1986); In re Parker, 15 B.R. 980 (Bankr.E.D.Tenn.1981), aff'd, 21 B.R. 692 (E.D.Tenn.1982); In re Colston, 11 B.R. 251 (Bankr.N.D.Ga.1981).

The Tenney court approved a Chapter 13 plan which proposed full payment of administrative claims in advance of secured claims, thereby postponing disbursements to holders of secured claims until the third or fourth month of the plan. The Parker court held that the administrative expenses may be paid concurrently with payments to other creditors.

In this case, the bankruptcy court approved the debtor’s attorney’s fees. However, the court ordered the payment to be stretched out over a period of time and to be made six months after the confirmation of the plan while other creditors receive payment.

At times, the attorney might waive the right to receive fees before other creditors are paid in order to preserve the feasibility of the plan. Here, the attorney did not. If the payment to the attorney pursuant to § 1326 would have interfered with the feasibility of the plan, the bankruptcy court should not have confirmed the plan.

The bankruptcy court abused its discretion in ordering the attorney’s fees to be paid six months after the confirmation of plan while other creditors are being paid. We reverse bankruptcy court’s order. The order confirming the plan shall govern the payment of the debtor’s attorney’s fees.