Be Aware: Maryland Bankruptcy Court Rules That Lender Attorney Fees Related to Routine Notices in Chapter 13 Are Allowable
Unless the court orders otherwise, creditors holding a claim secured by the debtor’s principal residence are generally required to file certain notices in Chapter 13 bankruptcy cases, particularly when the Chapter 13 plan requires the trustee or debtor to make contractual installment payments. Specifically, creditors must file a Payment Change Notice if the amount of an installment payment changes. Such change could be due to interest-rate adjustments or changes in escrow payments. Additionally, if a creditor assesses post-petition fees to a debtor’s account (e.g., late charges or attorney fees) and asserts that these fees are recoverable against the debtor or the debtor’s property, the creditor must file a Post-petition Fee Notice (“Fee Notice”) detailing the fees, expenses, and charges incurred during the Chapter 13 case. These notice requirements are detailed in Federal Rule of Bankruptcy Procedure (FRBP) 3002.1.
In a recent Maryland Chapter 13 bankruptcy case, In re Cruz, 663 B.R. 792 (Bankr. D. Md. 2024), the debtor, Ms. Cruz, filed her bankruptcy petition in December 2022. At the time of filing, Ms. Cruz was current on her regular monthly installment payments due on a home equity line of credit (“HELOC”) secured by her principal residence. As is typical with HELOCs, Ms. Cruz’s payment amounts fluctuated, with her monthly payments ranging between $630 and $675. Accordingly, as required by the bankruptcy rules, the creditor filed monthly Payment Change Notices. To file these notices, the creditor hired local bankruptcy counsel and incurred attorney fees of $150 for each notice filed. Additionally, the creditor had its local counsel file periodic Fee Notices detailing the attorney fees associated with the filing of the monthly Payment Change Notices. Each Fee Notice also included an additional $125 fee for the attorney’s work in preparing the Fee Notice.
By August 2024, after many notices had been filed by the creditor’s counsel, the debtor, who was current on her payments, became concerned about the substantial accumulation of charges—nearly $3,000—assessed to her HELOC account. As permitted by the bankruptcy rules, Ms. Cruz filed a motion to determine the reasonableness of the attorney fees being charged. In relevant part, FRBP 3002.1(e) provides that “[o]n motion of a party in interest … the court shall, after notice and hearing, determine whether payment of any claimed fee, expense, or charge is required by the underlying agreement and applicable non-bankruptcy law to cure a default or maintain payments …”
After reviewing the underlying loan documents, the Bankruptcy Court found that the fees assessed by the creditor were permitted by the loan agreement. The Court then turned to the reasonableness of the fees and determined that the amounts charged by local counsel to prepare and file the many notices were reasonable.
To prevent the accumulation of additional fees, the Court entered an order excusing the creditor from the requirement to file further Payment Change Notices and Fee Notices in Ms. Cruz’s case.
When filing a Chapter 13 bankruptcy case for a debtor with a home equity line of credit, it may be prudent to file a motion at the outset of the case requesting that the Court enter an order excusing the creditor from filing the notices required by FRBP 3002.1. This proactive step can help mitigate the risk of excessive fees accumulating throughout the case and prevent an unnecessary financial burden for the debtor at the conclusion of the bankruptcy.