Why Does a Chapter 11 Cost So Much?

05 Jul Why Does a Chapter 11 Cost So Much?

When I give lectures on individual and small business Chapter 11 cases, I always advise new Chapter 11 attorneys to buy a thick towel for their desk. After I get a confused look from the audience, I explain: “It’s to protect your client’s jaw when it hits your desk after you tell them your fee!”

All kidding aside, Chapter 11 cases are much more expensive than Chapter 7 and Chapter 13 cases. Why?

1. Apart from your attorney’s fees, the filing fee is more than triple that of other chapters. Chapter 7: $306. Chapter 13: $281. Chapter 11: $1,046.

2. Everything is different about Chapter 11’s. They’re not just a “big Chapter 13.” They differ from the very beginning: instead of simply filing your papers as your lawyer, he or she must apply with the Court–and have it approve–the representation during the Chapter 11. Accountants and tax preparers need Court approval too.

3. Chapter 11 cases take a lot more time than Chapter 7 or Chapter 13 cases. Even a simple Chapter 11 case will require a Motion to Approve Attorney, attendance at the Initial Debtor Interview (IDI) with the US Trustee’s office, a (much longer) Meeting of Creditors, preparation and filing of a Disclosure Statement and Chapter 11 Plan (which typically run about 50 pages), attendance at the Disclosure Statement Hearing, solicitation of votes from creditors and submitting ballots, attendance at the Confirmation Hearing, etc. All of these things take a lot of time, and since virtually all Chapter 11 cases are handled on an hourly basis, this means that they cost a lot.

4. Chapter 11 cases usually require more negotiations with creditors. In a typical Chapter 13 case, provided all payments are made and the claims are proper, it is not unusual to never speak with a creditor or creditor’s attorney. This rarely is the case in Chapter 11 cases. Soliciting votes, working out adequate protection orders, possibly having to file a cash collateral motion–all of these are typical in a Chapter 11.

5. Chapter 11 cases are far more confusing for clients. Many Chapter 7 and 13 cases are fairly straightforward, and follow fairly typical paths, and it is relatively easy for your attorney to explain what’s going on and why. It is far more difficult to explain arcane legal concepts such as the “Absolute Priority Rule,” “Cash Collateral Motions,” “Adequate Protection,” “Cramdowns (of creditor objections to Plans)” and the like.

6. Your attorney needs to work with you on monthly business reports and quarterly trustee payments.

7. There are very few attorneys who handle individual and small business Chapter 11 cases. Most consumer bankruptcy attorneys won’t touch Chapter 11 cases with a ten foot pole. (I get many of my Chapter 11 cases from referrals from other consumer bankruptcy attorneys.) And few business bankruptcy attorneys can make enough money handling individual and small business cases to make it worth their while.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.

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