In Chapter 13 bankruptcy, the rules regarding when a lender can charge legal fees to your account are primarily governed by the terms of your repayment plan and the Bankruptcy Code, particularly 11 U.S.C. § 1322(b)(5). Here are some key points to consider:
1. Automatic Stay: Upon filing for Chapter 13 bankruptcy, an automatic stay is issued, which generally prohibits creditors from taking actions to collect debts, including charging additional fees like legal fees, without court approval.
2. Repayment Plan Confirmation: Legal Fees Before Confirmation: Before your Chapter 13 plan is confirmed, lenders cannot unilaterally add legal fees to your debt. Any such fees would need to be addressed through a motion to the bankruptcy court for relief from the automatic stay or for permission to add these fees to the claim. Legal Fees After Confirmation:
3. Pre-Petition Fees: If the lender incurred legal fees before you filed for bankruptcy, these might be included in the secured claim if they were part of the pre-petition debt. However, they still need to be approved by the court as part of your plan or through a proof of claim.
4. Post-Petition Fees: For legal fees incurred after the filing of the bankruptcy but before the confirmation of the plan, these fees can only be charged if:
(a) They are related to the ongoing administration of the bankruptcy, like defending against a motion to avoid a lien.
(b) The fees are approved by the court. This might involve the lender filing a motion for allowance of administrative expenses or amending their proof of claim.
5. During Plan: After the plan is confirmed, any fees incurred by the lender for actions related to the bankruptcy (like defending against motions to modify the plan that affect their interests) would generally require court approval to be added to your debt. This approval might come through a motion for fees or as part of a claim amendment, but it's not automatic.
6. Proof of Claim: Lenders must file a proof of claim for any fees they wish to recover. If the fees are for post-petition actions, they must be justified and might not be automatically allowed without court review.
7. Plan Provisions: Your Chapter 13 plan might specify how post-petition fees are handled. Some plans might include provisions for how legal fees are to be treated, whether they are paid through the plan or handled separately with court approval. 3
8. Court Oversight: The bankruptcy court has significant oversight in Chapter 13, and any attempt by a lender to charge legal fees to your account outside of these parameters could be challenged. The court can determine if fees are reasonable and necessary.
9. Objections: If you or your attorney believe the fees are excessive or improperly charged, you can object to them. The court would then review the matter, potentially holding a hearing to determine if the fees should be allowed.
10. Contract provisions: In most cases the Debtor's contract with the lender must clearly state when legal fees and costs incurred by the lender can be billed to the account. Always look to your Note or Security Agreement for these types of clauses, and ask your attorney to hold the lender to them in court if fees become an issue. Corporate law firms love to nickel and dime Debtors on legal fees, because most debtor law firms fail to challenge them.
In summary, a lender can charge legal fees to your account during Chapter 13 bankruptcy only with court approval, typically through motions or amendments to claims. This process ensures that any additional fees are justified, reasonable, and in line with the debtor's ability to pay under the Chapter 13 plan