Under certain circumstances a creditor may charge your bankruptcy case for attorney fees. Some bankruptcy cases have assets that are distributed to creditors. Before a creditor receives any money, the creditor must file a Proof of Claim identifying the amount allegedly owed to that creditor. Federal bankruptcy law by itself does not enable or authorize a creditor to add attorney fees to a Proof of Claim. Proof of Claims are evaluated according to the applicable state law. If the underlying contract giving rise to the claim provides for payment of attorney fees, the creditor may, under certain conditions, include such fees consistent with that agreement. Such conditions are present in cases of residential real estate mortgages and court judgments.
Bankruptcy law does not permit a debtor to modify the rights of a holder of an interest secured solely by residential real estate. In such a case, one must look to the underlying contract, usually a mortgage and note. Most mortgages contain a contractual provision that allows a holder to recover reasonable and appropriate costs taken to protect its security [the real estate]. Many Proof of Claims filed on behalf of mortgage holders include several hundred dollars of attorney fees incurred by the mortgage holder in connection with preserving its interest in the property. According to the recent US Supreme Court [SCOTUS] case of Travelers vs. Pacific Gas, a bankruptcy court must evaluate a creditor’s request for attorney fees according to the appropriate state law governing the contract. Another case of attorney fees allowed in bankruptcy involves attorney fees awarded in state court judgments. Under the Rooker- Feldman doctrine, the bankruptcy court must honor a decision rendered between the parties in a state court proceeding. When that judgment awards attorney fees to the creditor, the full amount of the award may be submitted to bankruptcy court in a Proof of Claim, including the portion attributable to attorney fees. Common examples of debt that might include attorney fees are credit card agreements, credit union loans and bank loans that have been reduced to judgment. Oppositely, if such debt has not proceeded to judgment, attorney fees are not appropriate because the amount of the debt is frozen at the time of filing bankruptcy and if the attorney fees were not already awarded by the state court, then they are not to be added to the bankruptcy Proof of Claim.
Andy Miofsky, Esq.
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Last modified: May 7, 2011