In a recent Thomson Reuters story, “Lawyers Under Fire for Boosting Fees on Bankrupt Companies,” reports that in June, members of the U.S. Trustee Program (USTP) met to discuss proposed guidelines that would increase government oversight of Chapter 11 filings.  The USTP is an arm of the Department of Justice that oversees how companies spend money during a court-supervised liquidation or restructuring.  The proposed guidelines (pdf) would require law firms working on bankruptcy cases to disclose their billing rates and fee applications, stop rounding up billable hours and work within budgets.

The government claims the new disclosure rules are necessary because bankruptcy lawyers’ ever-rising fees, which frequently top $1,000 per hour, unfairly target companies when they are financially fragile.  The government also says bankruptcy lawyer’s fees are rising disproportionately to other lawyers’ fees.

The new disclosure rules will require law firms to notify their clients of rate increases, calculate how much clients’ bill will rise and supply the Trustee’s office with statements from clients saying they agreed to the higher fees.  With any luck, the changes will curb rising legal costs among floundering companies that are routinely paying fees of hundreds of millions of dollars in large bankruptcy cases.  For example, the liquidation of Lehman Brothers Holdings, which is the largest Chapter 11 case in U.S. history, has netted $1.6 billion in fees, so far.

More than 100 law firms, including Foley & Lardner and Weil Gotshal, are against the Trustee’s office’s new rules, saying they are too burdensome and could increase costs even more.