Berliner v. Pappalardo (In Re Puffer)

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.

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 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

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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

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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

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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

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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

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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. Hernández-Colón, 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").

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 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 — a course usually more

in line with the interests of the debtor, the creditors, and the

bankruptcy court — 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.

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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.

— Concurring Opinion Follows —

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 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

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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.

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 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,

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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

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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

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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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