The “American rule” is a well-defined legal principle applied by courts throughout the United States that holds each party to a dispute responsible for paying its own attorney fees. This principle is, however, subject to a number of exceptions that effectively allow a prevailing party to recover its own attorney fees from a losing party. For example, federal and state statutes increasingly authorize a prevailing party to recover costs from its adversary in certain types of actions. Likewise, contracting parties often incorporate “fee shifting” terms that provide for recovery of litigation costs by one party in the event of litigation on the contract. In other circumstances, a court exercising its own discretion may award a prevailing party its attorney fees as part of the judgment.

For a judgment creditor whose judgment includes an award for prospective attorney fees, the bankruptcy of the judgment debtor will create numerous obstacles to execution. In particular, while the judgment creditor will normally have an allowed claim against the judgment debtor’s bankruptcy estate for the principal portion of its judgment award pursuant to Section 502 of the Bankruptcy Code, it is not clear whether such a claim can properly include attorney fees and costs incurred post-petition. Similarly, even if the judgment creditor’s claim is fully secured, it is unlikely that the portion of the claim attributable to post-petition attorney fees will be entitled to secured status pursuant to Section 506(b). Instead, the balance attributable to post-petition attorney fees will likely be considered an unsecured claim.

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