Debtors in this chapter 13 case filed an application to employ Jack Sherman as an accountant at an hourly rate of $150 (Docket Entry 8, filed December 28, 1995). Bruce Nesbitt is a dentist, operating as a professional corporation, and has filed a concurrent chapter 11 petition for the corporation, Case No. F95-00723-HAR, In re R. Bruce Nesbitt, DDS, PC, Debtor, in which the debtor likewise applied to retain Sherman.

The United States Trustee filed an objection in both this chapter 13 case and the chapter 11 case because it alleges that Jack Sherman is not a certified public accountant and does not qualify as an accountant under 11 USC § 101(1) of the Bankruptcy Code.

I hold that in this chapter 13 case there is no requirement or provision for the court to approve Sherman's appointment. This decision only applies to this chapter 13 case.

2.       4 ABR 247  EMPLOYMENT OF PROFESSIONALS BY CHAPTER 13 BUSINESS DEBTORS DOES NOT REQUIRE PRIOR COURT APPROVAL -

The application in the chapter 13 case will be denied because the Bankruptcy Code does not provide for applications for the employment of professional persons by a chapter 13 debtor operating a business. See, 11 USC § 327, which provides:

§ 327. Employment of professional persons.

(a) Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title.

(b) If the trustee is authorized to operate the business of the debtor under section 721, 1202, or 1108 of this title, and if the debtor has regularly employed attorneys, accountants, or other professional persons on salary, the trustee may retain or replace such professional persons if necessary in the operation of such business.

There is no provision in chapter 13 similar to the one in chapter 11 specifically which makes a chapter 13 debtor in possession like a trustee. See, 11 USC § 1101(1) ("In this chapter-- (1)`debtor in possession' means debtor except when a person that has qualified under section 322 of this title is serving as trustee in the case").

The closest chapter 13 comes to giving a business debtor trustee powers is 11 USC § 1304, which does provide some recognition of the status of a chapter 13 business debtor:

§ 1304. Debtor engaged in business.

(a) A debtor that is self-employed and incurs trade credit in the production of income from such employment is engaged in business.

(b) Unless the court orders otherwise, a debtor engaged in business may operate the busiess of the debtor and, subject to any limitations on a trustee under section 363(c) and 364 of this title and to such limitations or conditions as the court prescribes, shall have, exclusive of the trustee, the rights and powers of the trustee under such sections.

      4 ABR 248 

(c)  A debtor engaged in business shall perform the duties of the trustee specified in section 704(8) of this title.

There is no specific requirement, however, regarding employment of professionals by chapter 13 business debtors. See, In re French, 111 BR 391 (Bankr NDNY 1989) (a court-ordered appointment is not a condition precedent to a request of an attorney for compensation), and In re Fricker, 131 BR 932, 940 (Bankr ED Pa 1991). Cf. In re Whitman, 51 BR 502, 507 (Bankr D Mass 1985) in which the court stated that "[s]ection 327 requires as a condition of employment as attorney for a debtor, the approval of the court upon a finding that the attorney does not hold or represent an interest adverse to the estate and is a disinterested person."

It is not the practice in this district for chapter 13 debtor's attorneys to apply for an order approving their employment. Ken Ringstad, debtors' chapter 13 attorney, has not applied for authority to represent the debtors in this case, and there is presumably no requirement for an application on behalf of Mr. Sherman to act as debtors' accountant either with respect to Sherman's employment.

This is somewhat inconsistent with the way the bankruptcy process operates in chapter 7 and chapter 11 when a business is being operated. And, FRBP 2015(c)(1) imposes certain record keeping duties on chapter 13 business debtors which might justify such a more structured procedure for authorizing employment of professionals. FRBP 2015(c)(1) provides:

In a chapter 13 individual's debt adjustment case, when the debtor is engaged in business, the debtor shall perform the duties prescribed by clauses (1)-(4) of subdivision (a) of this rule.

These reporting requirements are extensive (although, often not honored in this district). One would presume that the employment of professionals by a chapter 13 estate is often justified, and that an application procedure, similar to chapter 11, should be in place. FRBP 2015(a)(1)-(4) provide:

(a) Trustee or Debtor in Possession. A trustee or debtor in possession shall

(1) in a chapter 7 liquidation case and, if the court directs, in a chapter 11 reorganization case file and transmit to the United States trustee       4 ABR 249  a complete inventory of the property of the debtor within 30 days after qualifying as a trustee or debtor in possession, unless such an inventory has already been filed;

(2) keep a record of receipts and the disposition of money and property received;

(3) file the reports and summaries required by § 704(8) of the Code [a requirement, where a trustee runs a business to file reports to the U.S. Trustee, tax collecting agencies, the court about business operation] which shall include a statement, if payments are made to employees, of the amounts of deductions for all taxes required to be withheld or paid for and in behalf of employees and the place where these amounts are deposited;

(4) as soon as possible after the commencement of the case, give notice of the case to every entity known to be holding money or property subject to withdrawal or order of the debtor, including every bank, savings or building and loan association, public utility company, and landlord with whom the debtor has a deposit, and to every insurance company which has issued a policy having a cash surrender value payable to the debtor, except that notice need not be given to any entity who has knowledge or has previously been notified of the case;

I don't know why Congress chose not to require prior court approval for the employment of professionals in chapter 13. It could have been inadvertence. Or, it may be that Congress intended to rely on the chapter 13 trustee to regulate this matter. Regardless of the reason, there is no requirement for prior court approval for such employment.

3. PROFESSIONALS EMPLOYED BY CHAPTER 13 BUSINESS DEBTORS MUST APPLY FOR COMPENSATION FROM THE ESTATE -

The absence of a provision regarding the employment of a chapter 13 professional by business debtors does not absolve them from having to apply for approval of their fees and the bankruptcy court's scrutiny of the application. In re Fricker, 131 BR at 940.

The statutes and rules discuss the right to payment of attorneys in chapter 13 in a disjointed way. For example, 11 USC § 329(b)(4)(B). (Indicating that reasonable compensation can be granted to debtors'       4 ABR 250  attorney in a chapter 13 case "based on the consideration of the benefit and necessity of such services to the debtor and other factors set forth in this section"), and recently amended § 330 which provides in part:

(a)

(1) After notice to the parties in interest and the United States trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, an examiner, a professional person employed under section 327 or 1103--
(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, professional person, or attorney and by any paraprofessional person employed by any such person; and

(B) reimbursement for actual, necessary expenses.

(2) The court may, on its own motion or on the motion of the United States Trustee, the United States Trustee for the District or Region, the trustee for the estate, or any other party in interest, award compensation that is less than the amount of compensation that is requested.

(3)

(A) In determining the amount of reasonable compensation to be awarded, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including-- [omitted]

(4)

(A) Except as provided in subparagraph (B), the court shall not allow compensation for--
(i) unnecessary duplication of services; or (ii) services that were not--
(I) reasonably likely to benefit the debtor's estate; or
(II) necessary to the administration of the case.

(B) In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case based       4 ABR 251  on a consideration of the benefit and necessity of such services to the debtor and the other factors set forth in this section. [emphasis added to this section].

Apparently through a drafting error in the 1994 amendments, the Congress deleted reference to compensating attorneys for chapter 7 debtors. Some courts have gone so far as to read this literally and deny compensation to chapter 7 debtor's attorneys, even though they might be allowed in chapter 13. In re Friedland, 182 BR 576, 579 (Bankr D Colo 1995) (discussing the amended statute, 11 USC § 330(a)(4)(B), which provides for compensation for a chapter 12 and a chapter 13 debtor's attorneys, but is silent regarding a chapter 7 debtor's attorneys).

4. CONCLUSION -

The bottom line is that there does not appear to be any requirement for the application, or authority for the court to approve the appointment. This does not necessarily mean that employment of an accountant is inappropriate, but it is not a matter that is governed through the statutory procedure for a trustee or debtor in possession that I have just discussed.

A separate order will be entered denying the application as unnecessary and not provided for under the Bankruptcy Code.

DATED: January 11, 1996

HERBERT A. ROSS
U.S. Bankruptcy Judge