Sometimes in defense to an automatic stay violation complaint opposing counsel will attack the legitimacy of a debtor's attorney as not having pre-approval, or approval in general, of the bankruptcy court to represent a debtor in a Chapter 13 bankruptcy. The theory seems to be that if opposing counsel can eliminate a debtor's representation that the matter will fail for lack of support. These arguments tend to be more tactical than legitimate defenses. These arguments certainly represent "Rambo tactics" designed to harass a debtor into failing to remedy any automatic stay violation. The question, therefore, arises as to whether counsel for the debtor in a Chapter 13 bankruptcy has to obtain approval of the bankruptcy court to represent a debtor either prior to the filing of an adversary proceeding or immediately after the filing of a complaint?
This would not seem to be the obligation of debtor's counsel, even “special” or “extra” counsel for a debtor retained by the debtor to file a complaint seeking damages for an automatic stay violation under 11 U.S.C. § 362(h), or § 362(k) under the Bankruptcy Code revisions, under 11 U.S.C. § 327 or Bankruptcy Rule 2014. The filing or amendment of a Statement of Attorney Compensation would seem to suffice. There is not much discussion in the case law as to the applicability of pre-approval of “extra” or “special” counsel for a debtor involved in a Chapter 13 bankruptcy. However, in informal discussions with trustees, attorneys with various United States Trustee offices and courts, this counsel is under the impression that 11 U.S.C. § 327 and Bankruptcy Rule 2014 does not require approval of the Court for a Chapter 13 debtor to retain counsel to pursue an automatic stay violation. However, from a practice standpoint, should the judge in which a complaint is pending disagree with this position, the better part of caution would suggest that in those instances an application for employment should first be sought or sought nunc pro tunc.
From a practical standpoint, if approval of counsel for the debtor in an adversary proceeding were required by a bankruptcy court it would necessitate bankruptcy counsel to seek approval of the Court in all Chapter 13 cases as is required in Chapter 11 debtor-in-possession cases. This practice is not followed in any jurisdiction of which this counsel is aware.
Court decisions existed that supported the position that an attorney representing the debtor in a Chapter 13, including "special" or "extra" counsel, did not first have to obtain court approval. By way of example, in In re Mowers, 160 B.R. 720, 722-23(N.D.N.Y. 1993), the bankruptcy court, in analyzing special counsel brought on for the purpose of an appeal in a Chapter 13 bankruptcy, found:
“The essence of Mrs. Mowers objection is that (special counsel) is not authorized to act on the Debtor's behalf since he is already represented by counsel in this bankruptcy proceeding, and there has been no formal substitution of counsel. However, (special counsel) has indicated that it has been retained solely as appellate counsel to the Debtor, and not for the purpose of substitution as the Debtor's bankruptcy counsel….Generally, there is no prohibition on a debtor being represented by more than one legal counsel in a bankruptcy proceeding, nor is there any requirement that a Chapter 13 debtor seek appointment of additional counsel pursuant to Code § 327…. (Special counsel) represented to the Court that its application to be appointed special counsel had been prepared and would be submitted to the United States Trustee ("UST") immediately upon leaving the Court's Chambers. However, (special counsel’s) application for appointment was subsequently returned by the UST with the explanation that appointment as special counsel was not required in Chapter 13.”
Further, In re Alfaro, 221 B.R. 927, 931 (1st Cir. BAP 1998), in which the BAP in a Chapter 13 context ruled:
“Generally speaking, the Bankruptcy Code contains no provisions either prohibiting a debtor from being represented by more than one attorney in a Chapter 13 case, or requiring that additional counsel file an application…In addition, the Bankruptcy Code does not require that attorneys who represent Chapter 13 debtors, as opposed to trustees or attorneys who represent debtors-in-possession, file applications with the court for approval”.
Although there does not appear to be any 5th Circuit case on point, the high court’s decision in Matter of Triangle Chemical’s Inc., 697 F.2d 1280 (5th Cir. 1983) would appear to be instructive. In a broad reading of this decision, the Court found that a “debtor” had to obtain prior court approval before retaining legal counsel, as the term “debtor” was the same as “debtor-in-possession” “except when a person that has qualified under section 322 of this title is serving as trustee in the case”. See, Matter of Triangle Chemical generally, but also see page 1219 in conjunction with footnote 12. 11 U.S.C. § 322(a) requires a separate trustee to be appointed and serve in all Chapter 13 cases. Therefore, dicta would appear to indicate that the 5th Circuit would not require the debtor in a Chapter 13 context to obtain prior permission from the Court to retain legal counsel to represent a debtor in an automatic stay violation context.
In a more recent case Judge Felsenthal, a well respected bankruptcy judge of the Northern District of Texas ruled in In re Powell, 314 B.R. 567, 569-70 (Bankr. N.D. Tex. 2004), a situation in which the Chapter 13 debtor retained special family law counsel to represent her without obtaining prior approval of the court:
“The court did not enter an order authorizing Powell to retain Brewer, Anthony as her special divorce counsel during the Chapter 13 case. A Chapter 13 debtor does not need court authorization to employ an attorney. The Code provides that a "trustee" may, with court approval, employ an attorney. 11 U.S.C. § 327(a) and (e). Section 327, both subsections (a) and (e), apply only to "the trustee." Chapter 13 does not decree that a Chapter 13 debtor has the rights or performs the functions or duties of a trustee. Compare 11 U.S.C. § 1107 Indeed, Chapter 13 requires the appointment of a trustee”.