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Professional Fees & Overhead

posted by Stephen Lubben

As some of you know, I spend a good deal of my time thinking about professional fees in chapter 11. One thing that has always puzzled me is the issue of "overhead." It is still common to find courts stating that certain items (e.g., secretarial overtime, attorney late night meals, word processing) are not recoverable in bankruptcy because they constitute "overhead." A variation on this same theme is those courts who announce that certain categories of expenses are not compensable "in this district."

Assuming these items are passed on to the client outside of chapter 11, the bankruptcy court that adopts this approach is essentially accusing the professional of double charging its clients.

More to the point, I wonder how the bankruptcy court knows that these items are overhead? Indeed, the fact that some law firms have two hourly rate structures, one with separate charges for expenses and one, higher hourly rate structure without these charges, suggests that these items are not part of overhead. And since law firm billing systems can easily assign these items to specific client and matter numbers, why assume they are overhead? 

In short, is it time for bankruptcy judges (and the U.S. Trustee) to drop the notion of "overhead"?


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