Routine Illegality in Bankruptcy Court Fee Practices

Abstract:     
This Article reports the results of an empirical study showing that the United States bankruptcy courts routinely authorize and tolerate professional fee practices that violate the Bankruptcy Code and Rules. The study documents the existence of three such illegal practices. The Ordinary-Course-Professionals Practice excuses some or all professionals serving in the ordinary course of the debtor’s business from the requirement that they obtain court approval for the payment of their fees. The Prior-Payment-Disclosure Practice ignores the requirement that a final fee application disclose the prepetition payments the professional received in connection with the bankruptcy case. The Disburse-First Practice allows debtors to pay 80% or more of the fees sought by professionals before the court has even seen the fee requests. The Article speculates that these practices, which apparently occur only in large, public company cases, result at least in part from competition among the bankruptcy courts for those cases.

Number of Pages in PDF File: 55

Keywords: bankruptcy, professional fees, attorneys fees, court competition

JEL Classification: K22, K41, K42, L84

Accepted Paper Series