Background
Debtors Stephen Falkner and Ahmed Alayah filed Chapter thirteen bankruptcy petitions in June two thousand twenty-five. Their repayment plans proposed paying secured creditors, the bankruptcy trustee, and their attorneys fees before distributing remaining funds to nonpriority unsecured creditors like the City of Chicago. The City of Chicago objected, arguing that paying attorneys first violated the requirement that all projected disposable income be applied to unsecured creditors. The bankruptcy court overruled the objections and confirmed the plans, relying on prior decisions treating attorneys as unsecured creditors who need not file proofs of claim.
The court’s reasoning
The court analyzed the interplay between section one three two five subsection b one B and other Bankruptcy Code provisions. It concluded that section one three two two subsection a two and section one three two six subsection b one require plans to pay priority claims, including attorneys fees, before or at the same time as payments to nonpriority unsecured creditors. The court found that the two thousand five amendment to section one three two five subsection b one did not intend to disrupt this longstanding practice. Additionally, the court determined that bankruptcy attorneys are unsecured creditors under the Code and may receive payments without filing a proof of claim, as administrative expenses are handled through a request for payment procedure.
What it means going forward
The ruling confirms that Chapter thirteen debtors can structure repayment plans to pay legal fees early in the commitment period without violating the disposable income requirement. It clarifies that attorneys do not need to file proofs of claim to receive administrative expense payments, streamlining the distribution process for bankruptcy counsel.