Bankruptcy Professional Fees

This fact sheet provides information on the guidelines used by Assistant U.S. Trustees within the Justice Department to assess the reasonableness of fee requests from attorneys and other professionals involved in bankruptcy cases. GAO surveyed Assistant U.S. Attorneys on (1) the guidelines they used to review professionals' fee requests overall and in chapter 11 cases specifically, (2) the reasons the local Office of U.S. Trustees or other parties in bankruptcy cases have objected to chapter 11 fee applications, and (3) the adequacy of compensation for private trustees in chapter 7 cases. GAO also examines differences in the offices with and without guidelines in U.S. Trustee activities, such as the time spent reviewing professional fee applications, the frequency and the types of objectives made to those applications, and the frequency of informal consultation on fee applications.

GAO found that: (1) of the 97 AUST surveyed, one-third had written AUST guidelines, one-half had written judicial directives regarding professional fees, and two-thirds had unwritten guidelines governing fee applications; (2) many of the AUST with trustee guidelines or judicial directives had guidelines specific to chapter 11 bankruptcy cases; (3) nearly two-fifths of the AUST with unwritten judicial guidelines had guidelines applicable to chapter 11 cases; (4) the written guidelines or directives AUST used most often in chapter 11 cases addressed professional fee application formats and lodestar formulas; (5) the unwritten guidelines AUST used in chapter 11 cases were related to holdbacks and the lodestar formula; (6) the Office of U.S. Trustees (OUST) objected to most chapter 11 fee applications because the attorneys did not adequately describe their work or itemize each task; (7) OUST objected most frequently to applications submitted by debtor attorneys; (8) OUST objected to chapter 11 fee applications more frequently, held pre-fee hearing consultations less frequently, and devoted more staff to reviewing fee applications than offices with no guidelines; (9) bankruptcy judges awarded private trustees in chapter 7 cases the statutory maximum compensation permitted in 81 percent of the cases; and (10) although excessive paperwork was the main reason private trustees voluntarily left their positions, challenging work and a dependable source of income were the most important reasons private trustees remained in their positions.