## Facts

- Chapter 7 debtors John and Betty Leitner retained attorney Bert Blackwell to represent them in their bankruptcy case.
- Blackwell charged $1,100 for legal services and advanced the $175 filing fee, to be repaid by the debtors in $100 monthly installments.
- To secure the obligation, the debtors granted Blackwell a mortgage on their residence.
- The residence was worth about $11,800 and was otherwise unencumbered.
- The debtors claimed a Nebraska homestead exemption in the residence, calculating exempt equity after subtracting Blackwell’s mortgage.
- During the case, the debtors and Blackwell executed a reaffirmation agreement covering the debt owed to Blackwell and submitted it for court approval under 11 U.S.C. § 524(c).
- The Chapter 7 trustee objected, asserting the reaffirmation would impose undue hardship and raising concerns about the attorney’s dual status as counsel and secured creditor.
- The debtors sought to withdraw the reaffirmation agreement.

## Issues

1. Whether a reaffirmation agreement between Chapter 7 debtors and their bankruptcy counsel for prepetition fees and a filing-fee advance should be approved under 11 U.S.C. § 524, including whether it imposed an undue hardship and was in the debtors’ best interest.
2. Whether a debtor’s attorney is disqualified from representing Chapter 7 debtors solely because the attorney is also a secured creditor of the debtors for bankruptcy-related fees.
3. What standards should govern an attorney’s practice of advancing filing fees, taking security interests in a debtor’s property (including exempt property), and seeking reaffirmation of fee obligations.

## Decision

- The court declined to approve the reaffirmation agreement as presented and allowed the debtors to withdraw it.
- The court held that an attorney is not automatically disqualified from representing Chapter 7 debtors solely because the attorney holds a secured claim for unpaid bankruptcy-related legal fees.
- The court emphasized that reaffirmations in favor of debtor’s counsel, particularly when supported by collateral in exempt property and paid over time, require careful judicial review for undue hardship and conflicts.

## Legal Principles

- Reaffirmation agreements must satisfy 11 U.S.C. § 524’s requirements, including that the reaffirmation does not impose an undue hardship on the debtor or dependents and is in the debtor’s best interest.
- A Chapter 7 debtor’s attorney is not per se disqualified from representation merely because the attorney is a secured creditor for unpaid bankruptcy-related fees.
- When counsel holds a security interest in the debtor’s property and seeks reaffirmation of the related debt, the arrangement is subject to heightened scrutiny to ensure informed, voluntary consent and to protect the debtor’s post-discharge fresh start.
- Debtor’s counsel must provide candid advice about dischargeability and reaffirmation options and must avoid using the attorney-client relationship or collateral position to induce reaffirmation for the attorney’s benefit.

## Conclusion

The court permitted withdrawal and refused approval of a reaffirmation agreement requiring Chapter 7 debtors to remain personally liable to their own bankruptcy counsel for fees and an advanced filing fee, finding the arrangement raised undue hardship and conflict concerns, while also holding that counsel’s status as a secured creditor for unpaid bankruptcy-related fees does not, by itself, bar representation.


In re Leitner, 221 B.R. 502 (Bankr. D. Neb. 1998)