The bankruptcy court granted in part the United States Trustee’s motion to examine the fees of debtor’s counsel. The court ordered full disgorgement of all post-petition fees paid, along with any pre-petition retainers.

The court ordered debtor’s counsel to disgorge all post-petition fees received in the Chapter 11 case because they were not authorized or approved. Counsel argued that he didn’t need court approval because he was paid from the proceeds of an exempt IRA, but the court pointed out those funds became property of the estate when they were withdrawn and deposited into the debtor’s checking account. The court also ruled the fees were unreasonable because the amount of attorney’s fees paid exceeded the reasonable value of the services provided. The court found that counsel “assisted the debtor in making incomplete and inaccurate filings, assisted the debtor in filing a clearly unconfirmable and wholly self-serving Chapter 11 plan, stonewalled the U.S. Trustee, and was legal counsel while the debtor dissipated the bankruptcy estate. Moreover, the bankruptcy was ill-conceived given the debtor’s breach of fiduciary duties, which necessitated the appointment of a Chapter 11 trustee. [Counsel]’s conduct cost the estate more than any value he provided.”

The U.S. Trustee also challenged pre-petition payments made to debtor’s counsel, but the court denied the request to disgorge those funds because the trustee did not make a prima facie showing that the payments were “in contemplation of bankruptcy” under § 329, so the issues of disclosure and reasonableness under § 329 did not arise.

Finally, because the billing records submitted by debtor’s counsel appeared to be unreliable, at best, and possibly intentionally false, the court scheduled a show-cause hearing to determine whether counsel should be permitted to continue practicing in bankruptcy court. See Fil. No. 533.