Law is Now Settled – Unsecured Creditors Get Their Attorney Fees in a Bankruptcy

The law has been clear for some time that secured creditors (mortgage holders, creditors with vehicle liens, equipment liens, etc.) are entitled to add their attorney fees to their claims in a bankruptcy or reorganization. The question of whether creditors, whose claims are unsecured, are entitled to add their attorney fees to their bankruptcy claim has, since 2007 has been creeping up and is now settled with the law siding in favor of creditors and their lawyers.

The U.S. Supreme Court in Travelers Casualty & Surety Company of America v. Pacific Gas & Electric, 549 U.S. 443 (2007) changed the established case law on the issue, reversing a previous Court of Appeals decision. In Travelers, the Court allowed an unsecured creditor to add its attorney fees to its claim, to the extent that the attorney fees were incurred “litigating issues of bankruptcy law”. This limitation has now been expanded and, the trend is clear – unsecured creditors are now allowed to add attorney fees to their bankruptcy claim. The most recent case, involving the reorganization of the Chicago Tribune (In re Tribune Media Company, 2018 WL 6167504 (D. Del 2018)), summarizes the recent Circuit Court Opinions makes it clear – creditors can add post-bankruptcy attorney fees to their unsecured bankruptcy claims.

Whether this clear trend will have an effect on most cases (Chapter 7’s and Chapter 13’s) is doubtful. This writer, while speaking on this subject at a recent seminar, polled a room full of creditors’ lawyers, all of whom said that it wasn’t worth the time or effort to amend their claim to add attorney fees. It is also noted that the only one in the group who had seen any creditor add any legal fee to an unsecured claim was this writer, who had only seen it once. Even as the law evolves, from a practical standpoint, it may be that the status quo remains in place.

Categories: Bankruptcy

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