In re Tamcke, No. 09-60833-12 (Bankr. D. Mont., March 8, 2011)
In a recent 9th Circuit decision, a Montana bankruptcy court was asked to consider what costs should reasonably be awarded for professional fees in a Chapter 12 case.
Under the Bankruptcy Code, when a claim is secured by property worth more than the claim itself, the creditor is entitled to interest and reasonable fees. The burden is on the creditor to show that it is entitled to reasonable fees under an agreement or applicable state statute.
The debtor in this case originally filed for a Chapter 13 bankruptcy, but requested that the case be converted to Chapter 12, and the court granted the request. Peoples Bank filed a proof of claim for $1,251,510.29, which was secured by the debtor's property, worth $3 million. Most of the claim was from principal costs and interest, and some was for legal costs and late charged. The bank sought relief from the automatic stay due to the long delay in the case, but the court denied the bank relief because the property securing the lien was worth enough that there was plenty of security for the bank, and the bank failed to show the delay of the case was unreasonable.
When the bank sought an additional $1892.50, the debtor opposed the request, arguing that the costs were excessive. The validity of the underlying claim and lien in this case was never disputed by the debtor, and the debtor also agreed that attorney's fees and costs were required to be paid by the debtor under their agreement. However, the debtor claims that the amount requested by the bank associated with filing and prosecuting its motion to modify the automatic stay was unreasonable.
While it is common in such circumstances for the court to award professional fees to an oversecured creditor who had to engage an attorney to defend its secured status, the court held that the fees requested here were not reasonably necessary for the protection of the bank's secured claim, but were due to overzealous advocacy. The court has discretion, in such situations, to disallow requested fees under section 506(b), which it did here.
