An ABI Committee Newsletter
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| Vol 24 Num 1 | March, 2026
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by Danielle Scott, U.S. Bankruptcy Court (S.D. W.Va.), Charleston
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Ordinarily, issues relating to misleading or incomplete fee disclosures are confined to 11 U.S.C. § 329 and Rule 2016(b) of the Federal Rules of Bankruptcy Procedure. Under § 329(a), a debtor’s attorney has an affirmative duty to disclose any compensation paid or agreed to be paid for services, if the payment or agreement was made within a year of the petition date. This duty exists regardless of whether the attorney is being compensated by the estate or other sources. Rule 2016(b) implements this obligation by requiring timely and complete disclosure of compensation and fee-sharing arrangements, with a continuing duty to supplement after any payment not previously disclosed.
The disclosure requirements under § 329(a) and Rule 2016(b) are “mandatory and ongoing for any attorney representing a debtor in a case under the Bankruptcy Code.” Enforcement of
these requirements is often limited to such remedial measures as denial of compensation or disgorgement of fees. Recently, in Shastal v. Recovery Law Grp. APC (In re Shastal), the U.S. Bankruptcy Court for the Eastern District of Michigan departed from this pattern and turned to 11 U.S.C. § 526 to enforce systematic disclosure failures. Although the opinion does not break new doctrinal ground, it underscores that § 526 is available as an additional mechanism by which courts may address pervasive disclosure failures and demonstrates the breadth of a court’s sanctioning authority under §§ 105, 329 and 526, as well as Rule 2016(b).
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by Justin A. Kesselman, ArrentFox Schiff, Boston
James Britton, ArrentFox Schiff, Boston
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The question of payment is among the trickiest aspects of a new engagement as a professional to a prospective debtor in bankruptcy. Like other engagements, the professional estimates their fees and requires a retainer to guard against the risk of nonpayment. In bankruptcy engagements, however, professionals must be particularly careful with pre-petition payments, including retainers — not only because of the client’s precarious financial condition, but also because the filing of bankruptcy itself places the payments at risk.
To guard against that risk, professionals must consider the source of funding, state law governing the form of retainer, the general requirements of the Bankruptcy Code and Rules governing the disclosure and treatment of payments to professionals, and other ramifications unique to the type of bankruptcy involved. A recent decision from the
U.S. Bankruptcy Court for the Middle District of Pennsylvania underscores the importance of thorough analysis and diligence of these issues at the outset, even in the face of financial emergencies precipitating the engagement.
In re Cambridge Riverview LLC, et al.
In Cambridge Riverview, a group of eight affiliated limited liability companies (the debtors) filed petitions chapter 11 petitions. The debtors’ sole member and manager (the “insider”) signed bankruptcy counsel’s engagement letter in his capacity as manager. The engagement letter required that the debtors fund an evergreen security retainer of $11,000 per case, which the debtors lacked the means to pay. Therefore, to fund the retainer, the insider wired $88,000 of funds from a personal account directly to debtors’ counsel.
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by Robert M. Charles, Jr., Womble Bond Dickinson (US) LLP, Tuscon, Ariz.
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There are situations where a client’s need for counsel may be coupled with a surprising inability to pay. For example, a debtor’s subsequent loss of access to estate funds for professional fees can put counsel in a difficult position.
In In re Athena Medical Group, LLC, counsel for a chapter 11 debtor that successfully confirmed a plan of reorganization under subchapter V was denied compensation from the estate because the debtor was removed as debtor in possession and the subchapter V trustee had not retained the attorneys as special counsel. Although the attorneys’ work was competent and resulted in plan confirmation and benefit to the estate, the Arizona bankruptcy court found that counsel was not eligible for compensation from the estate.
This decision highlights the statutory conflict between a subchapter V debtor’s exclusive right to
file a plan and the immediate termination of counsel’s employment under 11 U.S.C. § 327 upon the debtor’s removal as debtor in possession. The attorneys’ plight may inform debtor’s counsel in similar circumstances on how to avoid a similar fate.
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by Ryan Srnik, Law Office of John T. Orcutt, P.C., Durham, N.C..
Edward C. Boltz, Law Office of John T. Orcutt, P.C., Durham, N.C.
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U.S. Supreme Court Justice Potter Stewart famously observed that while he could not precisely define “pornography,” “I know it when I see it.” In a far less sensational context, Justice Stewart offered another observation that resonates deeply in bankruptcy practice: “Ethics is knowing the difference between what you have the right to do and what is the right thing to do.”
Those words have particular force in chapter 13 bankruptcy, a system that depends on transparency, reliance and finality. Consumer debtors commit three to five years of disposable income based on representations made by creditors — especially mortgage-servicers — about what is owed, what will be cured through the plan, and what will not survive discharge. When those representations are incomplete, misleading or internally inconsistent, the resulting harm is not theoretical. It
undermines plan feasibility, distorts debtor decision-making, burdens trustees with unnecessary litigation, and erodes confidence in the chapter 13 process itself.
Recent decisions from North Carolina bankruptcy courts — In re Peach and In re Rogers — reflect a growing judicial unwillingness to tolerate post-petition mortgage accounting practices that obscure, defer or selectively disclose fees assessed to a debtor’s loan. These cases are not merely technical interpretations of Federal Rule of Bankruptcy Procedure 3002.1 or North Carolina General Statute § 45-91. They are consumer-protection decisions, grounded in the recognition that chapter 13 debtors and trustees are entitled to accurate, complete and final accounting.
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by Prof. B. Summer Chandler, Louisiana State University Paul M. Herbert Law Canter, Baton rouge, La.
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The use of generative artificial intelligence (AI) by legal professionals in their work has risen dramatically in the last year. This increase in use has been accompanied by a steady stream of fabricated cases being utilized in court filings. These fabricated cases are often referred to as “phantom cases” or “hallucinations.” When these phantom cases are discovered in court filings, the court must determine what consequences, if any, should be imposed on the attorneys who submitted the filings containing them.
Bankruptcy judge Richard D. Taylor recently addressed this question in the chapter 11 case of In re Whitehall Pharmacy LLC. In Whitehall, debtor Whitehall Pharmacy LLC filed several motions, seeking first-day orders from the court. Included among these motions was a motion seeking permission to pay pre-petition claims of certain
“critical” vendors and other creditors (the “Critical Vendor Motion”).
The court issued a show-cause order after discovering that the Critical Vendor Motion incorrectly asserted that “Courts in this District and others have routinely authorized the payment of critical vendor claims under similar circumstances.” The court further determined that the incorrect assertion was supported by a citation to a nonexistent case. Counsel ultimately accepted responsibility for the phantom case citation and acknowledged negligence and “systemic lapses in lieu of an intent to mislead the court or gain an adversarial advantage.”
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