Typically once a chapter 11 plan is confirmed, the assets of the estate are transferred to the “Reorganizaed Debtor” who then proceeds on its merry way.  The Reorganized Debtor may retain and pay counsel without the necessity of court oversight, meaning no expensive and time-consuming fee applications.  Typically the Plan sets forth that the Reorganized Debtor may retain counsel etc.

What about chapter 11 cases for individuals?  Confirmation does not result in a discharge.  According to the Central District Form Plan, Form 2081-1.PLAN, confirmation ressults in a transfer of the assets to the “reorganized debtor’ (small caps).  Does it therefore work the same way?  The question remains, may the debtor retain and pay counsel, after confirmation, without filing an application to employ and fee applications?  The form PLAN does not say.

The easy answer is to include language in the form PLAN that provides that the debtor may retain and pay counsel without court approval after the Plan is confirmed.

A undersecured creditor in a chapter 11 is permitted to elect to force the debtor to treat its undersecured claim as fully secured.  Does that mean then that the claim includes postpetition fees and   pursuant 506(b)?  Judge Sheri Bluebond has ruled that attorneys fees are recoverable but not postpetition interest.  Her opinion can be accessed here.   She writes:  “Two decisions bear directly on the answer to this question: Travelers Cas. & Sur. Co. of Am. v. PG&E, 549 U.S. 443, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007) and Infonet Mgmt. v. Centre Ins. Co. (In re SNTL Corp.), 571 F.3d 826 (9th Cir. 2009).”  Travelers of course is the Supreme Court ruling that the American rule of collecting attorneys fees applies in the bankruptcy world as a general rule.  SNTL holds that “’So long as the right to collect the fees existed prepetition, the fact that the fees were actually incurred during the postpetition period is not relevant to the determination of whether the creditor has an allowable pre-petition claim for the fees.’”  So the claim is allowed unless Section 502 disallows it.  So the claim of the creditor electing 1111(b) includes postpetition attorneys fees per SNTL but not interest because 502(b) says no unmatured interest and 506(b) postpetition interest only to oversecured creditors.

The en banc oral argument in Nancy Clark’s Flores case has been set for this coming Tuesday.  The announcement is here.  Kozinski is part of the panel.  The 9th Circuit Opinion which has been vacated by the en banc decision is here.

Flores is the chapter 13 case which trys to answer the question of whether an over median debtor who has a negative “net disposal income” per the means test is required to have a five year plan.  The Supreme Court case of Lanning v. Hamilton said that if the means test net is a negative number, the court has to use common sense and pick some reasonable plan payment amount.  The code says over median debtors have to pay for five years, but they have to pay the means test amount.  Since that cannot be done and the court must pick a reasonable amount, can’t the court also pick a reasonable period?  The 9th Circuit in Flores said, yes.  The 9th Circuit will review that ruling en banc on Tuesday.