The U.S. Bankruptcy Court for the Eastern District of California recently issued an Amended Order to Show Cause (“OSC”) in In re Gilsvik, 25-20121-B-7 (Bankr. E.D. Cal), signaling continued judicial scrutiny of attorney’s fees charged in individual Chapter 7 cases. The court’s order highlights its willingness to independently evaluate the reasonableness of debtor’s counsel fees under 11 U.S.C. § 329(b) and to require disgorgement where fees exceed the reasonable value of services provided.
In In re Gilsvik, debtor’s counsel disclosed compensation of $7,199.00 for legal services in a Chapter 7 case. After reviewing the disclosure, the court conducted its own independent survey of fees charged by 20 Chapter 7 practitioners who regularly appeared in cases assigned to the same department within the prior three months. According to the court, fees in this surveyed sample ranged from $750.00 to $4,000.00, and notably included the same attorney, who had charged between $2,249.00 and $3,349.00 in other cases.
Based on this comparison, the court concluded that the $7,199.00 in fees exceeded the reasonable value of services to be provided in the case.
Relying on Section 329(b), the court announced its intent to disgorge $3,199.00, effectively capping reasonable compensation at $4,000.00. The court ordered debtor’s counsel to show cause in writing why the full amount should be deemed reasonable and why disgorgement should not be ordered. The court also cautioned that any written response would be reviewed under Federal Rule of Bankruptcy Procedure 9011.
The order further set an in-person hearing on the OSC, while providing counsel with an alternative: If counsel filed an amended disclosure limiting fees to $4,000.00, no written response would be required and the hearing would be vacated.
The OSC is a reminder to Chapter 7 attorneys that their fees are subject to independent judicial review, even in the absence of any objection by the U.S. Trustee’s Office, Chapter 7 trustee, or creditors. Bankruptcy courts retain authority under 11 U.S.C. § 329(b) to examine fee disclosures sua sponte and determine whether the compensation exceeds the reasonable value of the services provided.
Additionally, the decision highlights that courts may evaluate reasonableness by comparing fees charged in similar cases within the same district. In this case, the court relied on recent fee data from practitioners regularly appearing before the same department, signaling that fees significantly exceeding prevailing local standards, particularly in routine consumer cases, may draw heightened scrutiny.
Finally, the OSC demonstrates that courts may offer counsel a second chance by allowing voluntary amendment of fee disclosures to avoid further proceedings. At the same time, the court made clear that any response would be evaluated under Rule 9011, underscoring the importance of careful, well-supported disclosures when seeking compensation in consumer bankruptcy cases.