City of Chicago v Stephen Falkner
- Case Type:
- Consumer
- Case Status:
- Affirmed
- Citation:
- 25-2878 & 25-2879 (7th Circuit, Jun 10,2026) Published
- Tag(s):
-
- Ruling:
- The Seventh Circuit Court of Appeals affirmed the confirmation of Chapter 13 plans that provided for the payment of Debtors’ attorneys' fees before or at the same time as nonpriority unsecured creditors. Attorneys' fees can be considered a reasonable expense for the below-median Debtors such that the fees would not come out of Debtors’ projected disposable income. Alternatively, longstanding practice and the Code demonstrate that Debtors' counsel qualify as unsecured creditors who can be paid with disposable income under the plan, even if they do not file proofs of claim.
- Procedural context:
- Under 11 U.S.C. § 1325(a), a Chapter 13 plan must meet certain statutory requirements to be confirmed. When an unsecured creditor objects to confirmation, additional requirements arise. Specifically, under § 1325(b)(1), confirmation cannot occur unless the objecting unsecured creditor is paid in full or "the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period … will be applied to make payments to unsecured creditors under the plan." While the Code does not define "projected disposable income," Congress has defined it as a debtor's current monthly income minus any "amounts reasonably expended for the debtor's maintenance and support." What is “reasonably necessary” changes depending on a debtor’s income level.
The Seventh Circuit explained the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA) changed procedures for above-median Chapter 13 debtors but did not alter the calculation of prospective disposable income for below-median debtors. BAPCPA also did not change the practice of Chapter 13 plans providing for the payment of debtors’ attorneys' fees. Further, 11 U.S.C. §§ 1322 and 1326 permit a Chapter 13 plan to allocate funds for attorneys' fees before or at the same time as payments to nonpriority, unsecured creditors.
Finally, while creditors generally must file a proof of claim to receive payment under a plan, that requirement does not exist for administrative claim-holders under 11 U.S.C. § 503(a).
- Facts:
- Debtors/Appellees Stephen Falkner and Ahmed Alayah each filed a Chapter 13 plan that sought, among other things, to pay their attorneys' fees before funds would be distributed to their nonpriority, unsecured creditors. In both cases, Debtors' incomes fell below the median income for Illinois, Debtors proposed to use their net monthly income to fund the plan, and Debtors owed money to a nonpriority, unsecured creditor, Appellant City of Chicago. The City objected to confirmation in both cases because each plan allocated funds to pay attorneys' fees before the City would receive payment. The City argued Debtors’ attorneys were not unsecured creditors and thus could not receive any projected disposable income. Alternatively, the City argued that even if counsel were unsecured creditors, their attorneys had not filed proofs of claim and were therefore barred from being paid. The bankruptcy court confirmed Debtors' plans over these objections and the City timely appealed.
- Judge(s):
- Scudder, Kirsch, Taibleson
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