In re Stephenson, Bankruptcy No. 96-30936DWS.

• Decision Date: 10 February 1997
• Docket Number: Bankruptcy No. 96-30936DWS.
• Citation: 205 BR 52
• Parties: In re Stephanie V. STEPHENSON, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

205 B.R. 52 (1997)

In re Stephanie V. STEPHENSON, Debtor.

Bankruptcy No. 96-30936DWS.

United States Bankruptcy Court, E.D. Pennsylvania.

February 10, 1997.

COPYRIGHT MATERIAL OMITTED

Robert C. Blackmon, Philadelphia, PA, for Debtor.

Andrew Schwartz, Chapter 7 Trustee, Philadelphia, PA.

Joseph Minni, United States Trustee, Philadelphia, PA.

OPINION

DIANE WEISS SIGMUND, Bankruptcy Judge.

Presently before the Court is the Debtor's Application for Waiver of the Chapter 7 Filing Fee (the "Application"). The United States Trustee ("UST") filed "comments" questioning whether the Application should be granted where an attorneys' fee of $400 had been paid, albeit by the Debtor's grandmother, for representation in the Chapter 7 case. After hearing on notice, I deny the Debtor's Application for the reasons set forth below.

BACKGROUND

The Debtor, Stephanie V. Stephenson, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code on November 12, 1996. Accompanying her petition was a completed form application required when fee waiver is sought, which was submitted to the clerk in lieu of paying the normal filing fee of $175. Although fee waiver is normally not available in bankruptcy, the Eastern District of Pennsylvania is one of six bankruptcy courts participating in a pilot project to study the effect of waiving the filing fee in Chapter 7 cases for individual debtors who are unable to pay the fee in installments.

In the Application the Debtor states that she has been unemployed since June 1995 and that she presently has no income from any source including government assistance, child support or even gift income. Rather Debtor depends solely on the assistance of family and friends for support. Debtor states that she has average monthly expenses of $1,171 consisting of rent, utility payments, food, clothing, transportation, recreation, insurance, taxes, and $300 of home maintenance costs, and supports her 15 year old son with whom she lives. The Debtor disclosed that her grandmother, Gladys Taylor, paid her attorney $400 for representation in this bankruptcy case.

A hearing attended by the Debtor, her counsel and a representative of the UST was held to consider Debtor's eligibility for the fee waiver program. The UST argued that Bankruptcy Rule 1006(b)(3) was a barrier to her eligibility. Rule 1006(b)(3) provides that in cases where the filing fee is being paid in installments an attorney representing the debtor cannot receive payment until the fee is paid in full. According to the UST, Debtor's election to utilize $400 to pay her attorney rather than the filing fee was fatal to her request for relief.

The Debtor, while present, did not testify in support of her Application. Rather her counsel answered questions posed by the Court and presented argument. The UST moved the admission of the Debtor's Application and Schedules.

Counsel stated that he became involved in the case as a result of his solicitation of the Debtor, and that the Debtor's family, who paid his fee, wanted him to represent the Debtor.¹ Counsel further disclosed that a judgment creditor of the Debtor had levied on personal property belonging not only to the Debtor but also to members of her family, and that his intervention in the matter, by representing the Debtor in bankruptcy, saved the property from being sold at sheriff's sale. With regard to the property of the Debtor's family, counsel indicated that it could be exposed to an execution sale by a judgment creditor of the Debtor because a "timely" property claim had not been filed with the Sheriff's Office on behalf of the nondebtor family members. These family members, counsel stated, decided that they would rather pay him $400 to file bankruptcy for the Debtor than have their own property exposed to a sheriff's sale.²

Counsel described the Debtor as having no income and being dependent upon the money and resources of her family with whom she apparently resides. Although the Debtor did not testify under oath, upon inquiry from the Court, she stated that she was not working, or receiving any form of government assistance, and was totally dependent on the largesse of her family for support. The Debtor owns no real property and only a bare minimum of personal property. Schedule "B" discloses a total of $500 worth of personal property consisting of $250 of "miscellaneous" clothing and another $250 of "miscellaneous" household goods and furnishings. Consistent with her Application, her Schedules show no income and $1,171 of average monthly living expenses. The Debtor lists a single claim in the amount of $1200, recorded as secured on Schedule "D", presumably held by the judgment creditor who counsel stated had levied on the Debtor's property.³

DISCUSSION

Under the Bankruptcy Act, a debtor could not receive a discharge unless filing fees were paid. Bankruptcy Act of 1898, §§ 14(b)(2) & 14(c)(8), 11 U.S.C. §§ 32(b)(2) & (c)(8) (repealed). The constitutionality of that provision was upheld by the Supreme Court in United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973). The Kras Court, observing that obtaining a discharge of one's debts was not a constitutional right, upheld the statutory fee requirements as not violative of due process or equal protection rights and found that the general statute providing in forma pauperis relief in federal courts, 28 U.S.C. § 1915, was not applicable in bankruptcy. Contemporaneously with the enactment of the Bankruptcy Reform Act of 1978, the Kras decision was essentially codified in 28 U.S.C. § 1930(a) which excepts bankruptcy filing fees from the federal in forma pauperis statute, 28 U.S.C. § 1915.⁴ However, § 1930 contemplates that the bankruptcy filing fee may be paid in installments. Bankruptcy Rule 1006 complements § 1930 by prescribing the procedure for paying the filing fee in installments and expressly provides:

(b)(3) Postponement of Attorney\'s Fees. The filing fee must be paid in full before the debtor or chapter 13 trustee may pay an attorney or any other person who renders services to the debtor in connection with the case.

In October 1993, Congress enacted legislation requiring the Judicial Conference of the United States to study and report on the impact of allowing debtors to file bankruptcy in forma pauperis ("IFP"). Department of Commerce, Justice, and State, the Judiciary, and Related Agencies Appropriations Act, 1994, Pub.L. No. 103-121, § 111(d), 107 Stat. 1153, 1165 (1993) (codified in the Historical and Statutory Notes to 28 U.S.C. § 1930). This legislation authorized a pilot program in six judicial districts for a three year period beginning October 1, 1994. The Eastern District of Pennsylvania was selected to participate in the program. A subcommittee of the Judicial Conference charged with overseeing the IFP pilot program issued "Guidelines and Procedures to Implement and Carry Out the In Forma Pauperis Pilot Program and Study" (the "Guidelines").⁵ Neither the legislation nor Guidelines set forth a standard to be utilized by the court in reviewing these applications. To fill this vacuum pilot district courts have drawn on the rather considerable jurisprudence under 28 U.S.C. § 1915. See In re Merritt, 186 B.R. 924, 929 (Bankr.S.D.Ill. 1995)⁶; In re Koren, 176 B.R. 740, 742-45 (Bankr.E.D.Pa.1995). I will do likewise but in so doing, I recognize that the allowance of IFP bankruptcy filings represents new grounds and presents special issues not presented in non-bankruptcy cases. Indeed one of the purposes of the pilot program is to develop and evaluate policies for the application of an IFP program in the unique context of bankruptcy.

IFP status is generally granted after an applicant establishes that he or she cannot afford to pay the filing fees or other costs of litigation and at the same time provide the necessities of life for himself and his dependents. Adkins v. E.I. DuPont de Nemours, & Co., 335 U.S. 331, 339, 69 S.Ct. 85, 89, 93 L.Ed. 43 (1948).⁷ The applicant bears the burden of proving his entitlement to IFP relief by a preponderance of the evidence. In making that determination, the court shall evaluate the totality of the circumstances. In re Shannon, 180 B.R. 189, 192 (Bankr.W.D.Tenn.1995); In re Beecham, 181 B.R. 335, 336 (Bankr.W.D.Tenn.1994); In re Clark, 173 B.R. 142, 146 (W.D.Tenn. 1994).

In this case, there is no question that Debtor's personal financial resources qualify her for IFP relief. Indeed the only objection raised by the UST is whether her payment of an attorney requires the Court to disapprove her application. I turn to that question first.

A.

Courts are divided on the applicability to an IFP determination of Rule 1006(b)(3)'s requirement that the filing fee be paid in full before any payment is made to counsel. Compare In re Beecham, supra; In re Takeshorse, 177 B.R. 99 (Bankr. D.Mont.1994)⁸; In re Thompson, 177 B.R. 890 (Bankr.W.D.Tex.1994) with Koren, supra. The former decisions appear to reach that conclusion by applying the Rule without consideration of the context in which it is being applied, the IFP pilot program. Rule 1006 was promulgated to implement § 1930 which prohibits fee waivers except when installments are authorized. The pilot program relieves debtors in pilot districts from that restriction and allows IFP relief in bankruptcy cases without regard to the extant statutory scheme. Rule 1006(b)(1) which prohibits filing without payment of the fee except where installments are authorized is thus suspended by the pilot program. It would be anomalous to, on the one hand, suspend the general filing fee requirement rule and yet maintain a condition imposed on a lesser restriction, installment payments. Nor does application of Rule 1006(b)(3) which governs the procedure in installment fee cases make sense when applied to fee waiver. With installments payments, the Rule has the effect of delaying the payment of counsel. In the fee waiver context, ...