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South Carolina: Bankruptcy Court Addresses Fees for Plan Review and Proof of Claim Preparation and Filing

Posted By USFN, Friday, August 29, 2014
Updated: Tuesday, October 13, 2015

August 29, 2014


by Ronald C. Scott and Reginald P. Corley
Scott Law Firm, P.A. – USFN Member (South Carolina)

Three cases were brought before the bankruptcy court regarding the attorney fees incurred for “Proof of Claim Preparation & Plan Review.” The fees in all three cases were $425, based on the Fannie Mae guidelines. The mortgage creditor did not respond to the debtor’s objection in the third case, so the court had insufficient facts to determine if the fee was reasonable. Here are some highlights of the court’s Order in the other two cases:

  • Bankruptcy Code Section 506(b) does not apply because the debtors are proposing to cure defaults through the plan. See Bankruptcy Code Section 1322(e); Deutsche Bank National Trust Co. v. Tucker, 621 F.3d 460, 464 (6th Circuit 2010).
  • Paragraph 9 of most standard Fannie Mae uniform mortgage instruments provides that such fees are secured by the mortgage and fall within the scope of doing what is reasonable to protect the creditor’s interest. (See page 11, footnote 2 of the Order.)
  • The court relies upon United Student Aid Funds, Inc. v. Espinosa, 559 U.S. __, 130 S. Ct. 1367 (Mar. 23, 2010), when determining that the services of an attorney are not unnecessary, due to the binding effect of a plan’s confirmation, even if treatment is improper.
  • In South Carolina, attorneys’ fees are recoverable only when authorized by contract or statute. See Baron Data Systems, Inc. v. Loter, 377 S.E.2d 296, 297 (S.C. 1989)
  • Where the contract provides for reasonable fees, the court considers the six factors in Dedes v. Strickland, 414 S.E.2d 134, 137 (S.C. 1992). All six factors weighed in favor of reasonableness. (The court does not express an opinion about the current Fannie Mae fee of $650.)
  • The fee of $425 was found reasonable in the two cases. However, the court observes in a footnote that the issue of whether or not the fees were earned at the time the notice was filed was not raised and could be an issue if challenged in the future.

Therefore, the payment (by the debtor) of the $425 fee noticed pursuant to Federal Rules of Bankruptcy, Rule 3002.1 is required by the underlying agreement and applicable non-bankruptcy law to cure a default or maintain payments in accordance with section 1322(b)(5) of the Bankruptcy Code.

The court did warn, however, that future 3002.1 notices must have a more detailed description of the services performed in order to satisfy Rule 3002.1(e).

Although this Order does not reach the subject of whether Rule 3002.1 would apply if the debtor is current at the time of filing, it does provide guidance as to the reasonableness of fees included in Rule 3002.1 Notices.

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