Administrative Costs In Bankruptcy Limited By Law

In a recent Chapter 7 bankruptcy case, an attorney employed by the bankruptcy trustee submitted what the court considered “inflated” charges for her services. The attorney justified her charges to the bankruptcy estate saying that she in fact was working on two cases, one for the individual debtors and another for the company owned by the debtors.  However, the bankruptcy court disagreed with the attorney’s argument and insisted that there was only one case on file and that the additional charges were not justified.  Section 330(a)(1) of the Bankruptcy Code governs how professionals employed by the bankruptcy estate can be compensated.

Under Section 330(a)(3) of the Bankruptcy Code, in determining reasonable compensation, the court considers the nature, the extent, and the value of such services, taking into account all relevant factors, including (A) the time spent on such services; (B) the rates charged for such services; (C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title; (D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue or task addressed; (E) with respect to a professional person, whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field; and (F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.

The above section of the Bankruptcy Code protects debtors from losing their assets to administrative costs in their bankruptcy case.  Any professional employed with the bankruptcy estate must provide services which are actually beneficial to the estate and which have reasonable rates. The bankruptcy court has discretion when deciding what is and is not reasonable.