In re Carr, Case No. 17–29195

CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois
Citation583 B.R. 458 (Mem)
Docket NumberCase No. 17–29195, Case No. 17–25013
Parties IN RE: Cleveland L. CARR, Debtor. In re: Antoinette L. Lindsey, Debtor.
Decision Date10 April 2018

583 B.R. 458 (Mem)

IN RE: Cleveland L. CARR, Debtor.

In re: Antoinette L. Lindsey, Debtor.

Case No. 17–29195
Case No. 17–25013

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed April 10, 2018

Ashley Chike, Nathan E. Curtis, Christopher M. Dyer, Peter Francis Geraci, Christine Kuhlman, Geraci Law L.L.C., Chicago, IL, for Cleveland L. Carr.

Michael A. Miller, Aaron M. Weinberg, The Semrad Law Firm, LLC, Chicago, IL, for Antoinette L. Lindsey.


Deborah L. Thorne, United States Bankruptcy Judge


Cleveland L. Carr ("Carr") and Antoinette L. Lindsey ("Lindsey") are both chapter 13 debtors who have proposed plans providing that their respective attorneys, Peter Frances Geraci Law, LLC ("Geraci") and The Semrad Firm, LLC ("Semrad"), be paid before their secured auto lenders. The chapter 13 trustee, Marilyn O. Marshall, has filed objections to each of their plans and to the applications to approve the compensation of each firm.

The court has heard argument, read the submissions of the parties, and conducted its own independent research. Although these are two separate chapter 13 cases, the issues and points of law are nearly equivalent, and because these issues relate to a great many chapter 13 plans and fee applications presented to this court, the court will issue one decision ruling on both cases.

The court finds that the proposed plans are confirmable but will deny the applications for compensation without prejudice as explained in this opinion.


Cleveland L. Carr

Carr filed a chapter 13 petition in September 2017. He has asked the court to confirm a plan which will require the chapter 13 trustee to disburse payments first to the trustee and second to his auto lender, Exeter Financial ("Exeter"), and to his attorney at the same priority.1 In other

583 B.R. 459

words, Carr's attorneys' fees in the amount of $4,000.00, and Exeter's secured claim in the amount of $13,100.00, will be paid at $200.00 and $348.00 per month, respectively. To date, Exeter has not objected to the proposed $348.00 per month payment through the life of the plan.

In Carr's case, a fee application was filed a week after the petition seeking approval of $4,000.00 in fees. Along with the application, Carr's law firm, Geraci, filed a Court Approved Retention Agreement ("CARA") signed by Carr and one of Geraci's attorneys. The CARA was signed nearly two weeks before Carr's petition was filed. The CARA pertinently provided that the debtor would pay the filing fee of $310.00 and attorneys' fees of $4,000.00. It obligated the attorney to, among other things, "[p]ersonally explain ... how and when the attorneys' fees and the trustee's fees are determined and paid." It also obligated the attorney to "[p]ersonally review with the debtor ... the completed ... [chapter 13] plan."

During the briefing on this matter, a detailed affidavit signed by Carr was filed as an exhibit to one of the pleadings. The affidavit provided that before the filing of the petition, Carr was informed of the precise terms of Geraci's accelerated compensation under the plan as well as the detrimental effect it would have on the early plan payments to Exeter. Carr stated that before the filing of the petition, he was made fully aware by Geraci that an early dismissal in his case would result in it being much more difficult for him to keep his vehicle as a practical matter because he would be paying more to his attorneys at the beginning of the case and less to the auto lender until the attorneys' fees were paid in full.

Antoinette L. Lindsey

The facts are much the same in Lindsey's case. Lindsey filed a chapter 13 petition in August 2017 and proposed a plan making payments in the amount of $590.00 per month for 60 months. During the early months of the case, the plan provides that the chapter 13 trustee will make adequate protection payments to the car lender, Regional Acceptance ("Regional"), in the amount of $25.00 per month. Regional has not objected to this amount of adequate protection. Starting in August of 2018, the payments to Regional increase to $500.00 per month. During the period of adequate protection payments, Lindsey's law firm, Semrad, will be paid over $500.00 per month.

Just as with Carr's case, Lindsey and her Semrad attorney entered into the CARA, which set out the same basic obligations as in the Carr case. They first entered into the CARA on August 14, 2017 (a week before filing). They executed a new CARA on the date that Lindsey filed her petition, August 21, 2017.

During the briefing in Lindsey's case, a set of disclaimers initialed by Lindsey and dated August 14, 2017 (a week before filing) was filed as an exhibit. The disclaimers indicate that Lindsey understood that Semrad would be paid before any of her creditors. A separate disclaimer indicated, however, that Lindsey understood that Semrad would be paid "before all creditors unless otherwise agreed or ordered by the court." The disclaimers, however, do not show that Lindsey understood, for example, the practical difficulties an early dismissal would have on her ability to keep

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her vehicle given the accelerated payment of Semrad's fees under the plan.

The Trustee's Objections to the Plans and Applications for Compensation

In both cases, the trustee filed an objection to the attorneys' compensation and an objection to confirmation of the chapter 13 plan. The trustee objects to the following: (1) payments made to the secured creditors will not be in "equal monthly amounts," since they receive only adequate protection for a certain amount of time, and only later do they begin receiving increased payments on their allowed secured claim;2 (2) debtors' attorneys in these cases have not shown that they have benefitted the estate; (3) the attorneys have breached their fiduciary obligations to the debtors by not disclosing to the debtors that they would be paid ahead of the debtors' other creditors, particularly the auto lenders; and (4) both attorneys violated Local Rule 2016–1 because both attorneys had come to an "agreement" with their clients concerning their compensation, and those agreements were never then reduced to writing, signed by both parties, and filed with the court pursuant to the requirements of Local Rule 2016–1.

For the reasons discussed below, the chapter 13 plans in both cases will be confirmed. Compensation in both cases is denied without prejudice. Counsel may refile applications seeking approval of compensation in conformity with this Memorandum Opinion.

Discussion 3

I. Is the Accelerated Payment of Attorneys' Fees in Chapter 13 Plans Permissible under the Bankruptcy Code in these Cases?

The court must decide whether section 1325(a)(5)(B)(iii)(I) applies where a secured creditor is not objecting to its treatment under the plan. Because the court concludes that it does not, the court does not reach the question as to whether or not that provision is violated when a secured creditor receives post-confirmation payments under the plan that are different in amount. For this reason, the trustee's objection to confirmation of the plan in Lindsey's case is overruled.4

A. The Relevant Statutory Provisions

Section 1325(a)(5) provides in relevant part that:

with respect to each allowed secured claim provided for by the plan— (A) the holder of such claim has accepted the plan; (B) ... (iii) if— (I) the property to be distributed pursuant to this subsection is in the form of periodic payments, such payments shall be in equal monthly amounts; and (II) the holder of the claim is secured by personal property, the amount of such payments shall not be less than an amount sufficient to provide to the holder of such claim adequate protection during the period of the plan; or (C) the debtor surrenders the property securing such claim to such holder ....
583 B.R. 461

11 U.S.C. § 1325(a)(5). For the court to confirm a chapter 13 plan, it must satisfy itself that one of section 1325(a)(5)'s three conditions has been met, since section 1325(a)(5) must be satisfied in order for a plan to be confirmed. See United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 277, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (noting that all conditions in section 1325(a) are mandatory); Johnson v. Home State Bank , 501 U.S. 78, 87–88, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) ; In re Andrews , 49 F.3d 1404, 1409 (9th Cir. 1995) (noting the use of the disjunctive "or" in section 1325(a)(5) ) (quoting In re Szostek , 886 F.2d 1405, 1412 (3d Cir. 1989) ).

Section 1326(b)(1) provides in relevant part that:

Before or at the time of each payment to creditors under the plan, there shall be paid—(1) any unpaid claim of the kind specified in section 507(a)(2) of this title ....

11 U.S.C. § 1326(b)(1). Section 1326(b) sets up a scheme by which administrative expense payments must be made either before or...

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