In re Puffer

Wayne Puffer (debtor) had $15,000 of debt and only $100 of income per month available to pay that debt. Puffer visited attorney L. Jed Berliner about filing for bankruptcy. Berliner explained that Puffer could file a Chapter 7 bankruptcy, which would discharge all the debts in a few months, including any unpaid legal fees. To protect himself, Berliner would agree to file a Chapter 7 petition only if Puffer used assets to pay $2,300 in attorney’s fees up front. Alternatively, Berliner offered to file a Chapter 13 bankruptcy petition. In a Chapter 13 case, Puffer would submit a plan to the court to pay creditors over a period of time, typically a minimum of three years, and Puffer’s debts would be discharged at the end. Berliner agreed to file a Chapter 13 plan for only $500 in up-front fees. The rest of Berliner’s attorney’s fees would be paid by taking almost all of Puffer’s available $100 each month for most of the plan months, leaving a few months of payments for bankruptcy trustee’s fees. This type of bankruptcy plan—one that pays only the attorney’s and trustee’s fees and pays essentially nothing to the pre-existing creditors—is known as a fee-only plan. Puffer chose to have Berliner file the fee-only Chapter 13 plan. The bankruptcy court rejected the plan, ruling that a fee-only Chapter 13 plan was always filed in bad faith and, therefore, was invalid. The bankruptcy court allowed Puffer to convert his case to a Chapter 7 case. Berliner moved for an award of approximately $2,800 in fees and expenses he had incurred filing Puffer’s Chapter 13 petition. The bankruptcy court denied the motion, finding that Berliner was not entitled to any fees for filing a bad-faith, fee-only Chapter 13 plan. Berliner appealed the denial of his fee request. The district court affirmed the decision. Berliner appealed to the United States Court of Appeals for the First Circuit.