Forty years ago, the Bankruptcy Code, in § 330(a)(3) (F), abolished the notion of the “economy of the estate.”

Prior to enactment of the Bankruptcy Code, the court in allowing or disallowing attorneys’ fees and compensation to other bankruptcy professionals did not need to allow as much compensation as the professionals could earn in the free market representing non-bankruptcy clients. The thinking was that determining what is reasonable compensation should balance the interest of economy in administering a bankruptcy estate for the benefit of creditors with getting competent professionals to represent trustees and debtors in bankruptcy cases.

Under Bankruptcy Code § 330(a)(3) (F), in awarding compensation to bankruptcy attorneys and other bankruptcy professionals, the court must take into account “whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.” The legislative history of this provision explains that the notion of the economy of the estate in fixing professional fees is outdated and has no place under the Bankruptcy Code.

Abolishing the “economy of the estate” has drawn some of the nation’s best attorneys and other professionals to bankruptcy court and has contributed to innovation, the development of the law, and fair and just bankruptcy proceedings.