Opinion
Case No. 1-01-04517, Objection to plan.
December 20, 2001
ORDER
Before me is the objection of Citifinancial Services, Inc. (Citi) to the proposed Chapter 13 Plan of Stephen Zinicola (Debtor). The basis for the objection is that the Plan proposes to pay administrative claims in full before it begins to pay secured claims, such as Citi's. Citi, holder of a claim secured by a second mortgage, argues that it should be paid contemporaneously with administrative claims, specifically the administrative claims for Debtor's attorney's fees.
The governing provision of the Bankruptcy Code is 11 U.S.C. § 1326(b)(1), which provides that "[b]efore or at the time of each payment to creditors under the plan, there shall be paid any unpaid claim of the kind specified in section 507(a)(1)." Section 507(a)(1) provides for the first priority of payment to go to administrative expenses under Section 503 (b). In turn, Section 503(b)(4) provides for payment of reasonable attorney's fees as an administrative expense.
The critical language at issue is the phrase in Section 1326(b)(1) "before or at the time of". This language essentially allows the Court discretion to decide whether administrative claims such as attorneys fees should be paid in full from the Plan before any other claims, or whether some sort of simultaneous payment scheme should be employed. In re Randolph, 2001 WL 1223139 *10 (Bankr.N.D.Ind.), citing, In re Pappas, Pappas Rose, P.C., 229 B.R. 815, 820 (W.D.Okla. 1998). In no case, however, should secured creditors be ordered to be paid before administrative claims like attorney's fees. Randolph, at *10, citing, In re Shorb, 101 B.R. 185, 186-87 (9th Cir.BAP 1989). The general rational for this provision is to provide incentive for attorneys to advise their clients to file in Chapter 13 as opposed to Chapter 7. In re Cook, 205 B.R. 437 (N.D.Fl. 1997), citing, In re Tenney, 63 B.R. 110, 111 (Bankr.W.D.Okla. 1986).
The Courts that have seen fit to order the payment of attorney's fees and secured creditors concurrently have generally done so only when the equities of the case indicated that the secured creditor would suffer harm if payments to it did not immediately commence. Randolph, at *10, citing, In re Rogers, 239 B.R. 883, 886-92 (Bankr. E.D. Tex. 1999). For instance, in cases where a secured creditor's collateral is depreciating in value even while the attorney's fees are being paid, the courts have deemed it fair to require concurrent payments from the Plan, since the secured creditor may not be adequately protected while the attorney is being paid. Put another way, the courts have found it inequitable to require a secured creditor to effectively underwrite the payment of attorney's fees.
The general practice in the Middle District of Pennsylvania is to allow the payment of attorney's fees first. The fact that this practice appears to have arisen through tradition rather than through a rule of court is of no particular moment; the fact is that the Code expressly authorizes such a practice. The Court is loathe to upset that practice without good reason.
The instant case does not provide such a reason. The instant creditor, Citi, is secured by real estate. There is no evidence that this real estate is depreciating in value. If Citi's collateral were a depreciating asset, such as a motor vehicle, then it might have a more compelling case. However, it does not appear that Citi will be harmed by keeping its place in line behind administrative expenses, along with the first mortgage holder.
For these reasons, Citi's objection to the Plan is hereby overruled, and the Plan is confirmed.