In its recent decision, Welzel v. Advocate Realty Investments LLC (In re Welzel), the 11th U.S. Circuit Court of Appeals resolved two related issues under 11 U.S.C. Section 506(b) as a matter of first impression.
The first issue concerns whether the bankruptcy court should apply the Section 506(b) reasonableness standard to contractually set attorneys’ fees that vest pre-petition and that are enforceable under state law. If the reasonableness standard is applicable, the second issue concerns whether a claim for fees should be bifurcated between secured and unsecured claims based on the amount of fees deemed reasonable, or whether the collection of such fees should be limited to an amount considered reasonable, with the balance disallowed.
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