Bankruptcy Plans-Administrative Priority Claims

7^th Circuit Court of Appeals

Case Name: City of Chicago v. Stephen Falkner

Case No.: 25-2878

Officials: Scudder, Kirsch, and Taibleson, Circuit Judges.

Focus: Bankruptcy Plans-Administrative Priority Claims

The Two Illinois residents with below-median incomes, proposed bankruptcy repayment plans under which secured creditors, priority creditors, the Chapter 13 trustee, and attorneys’ fees would be paid before any distributions to nonpriority unsecured creditors. Under one plan, any remaining funds would be distributed pro rata to nonpriority unsecured creditors, while under the other, no funds would remain for such creditors after payment of attorneys’ fees.

The City of Chicago objected to both plans in the United States Bankruptcy Court for the Northern District of Illinois. The City argued that the plans violated 11 U.S.C. § 1325(b)(1)(B) because they directed projected disposable income toward attorneys’ fees rather than payments to unsecured creditors. According to the City, bankruptcy attorneys are not unsecured creditors and therefore could not receive such payments. In the alternative, the City contended that even if attorneys qualified as creditors, they were not entitled to payment because they had not filed proofs of claim.

The bankruptcy court overruled the City’s objections and confirmed both plans. Relying on its prior decisions, the court concluded that attorneys’ fees could properly be paid during the plan’s commitment period and that bankruptcy attorneys were not required to file proofs of claim in order to receive payment under a confirmed Chapter 13 plan.

The Seventh Circuit found that the Bankruptcy Code permits Chapter 13 plans to provide for the payment of attorneys’ fees before or concurrently with payments to nonpriority unsecured creditors during the commitment period. The court further held that bankruptcy attorneys hold administrative priority claims and therefore are not required to file proofs of claim to receive payment under the plan.

Affirmed.

Decided 06/10/26

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