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Legal fees incurred postpetition and prior to confirmation must be approved by the Bankruptcy Court as reasonable under 11 U.S.C.S. § 506(b) and Fed. R. Bankr. P. 2016(a). Preconfirmation, postpetition fees are proven by application. Fed. R. Bankr. P. 2016(a) mandates that an entity seeking compensation for services or reimbursement for expenses shall file an application setting forth a detailed statement of (1) the services rendered, time expended, and expenses incurred, and (2) the amounts requested.
The debtor's plan provided for prepetition arrearages on the mortgage to be paid to the trustee and postpetition payments paid directly to the creditor. Debtor obtained a commitment from another lender to refinance the debt owed to the creditor. The debtor obtained a payoff balance from the creditor. The debtor's counsel was unable to obtain an accounting from the creditor explaining its calculations. The debtor was forced to remit the sums demanded or lose his loan commitment.
Did the creditor violate the automatic stay imposed by collecting both pre and postpetition charges from property of the estate without authorization?
The Court held that the amount collected by the creditor at the closing of the refinancing was substantially in excess of the sums due. The creditor was ordered to return the overpayment, plus interest. The Court also held that the creditor violated the automatic stay imposed by 11 U.S.C.S. § 362 by collecting both pre and postpetition charges from property of the estate without authorization. The Court held that the creditor delayed returning the debtor's property for over one year, and failed to provide a reasonable accounting of the loan history from which the correct amounts due could have been ascertained. The Court agreed to consider an award of sanctions at a separate hearing.