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The bankruptcy feast
When Endrex Exploration Co. filed for bankruptcy protection in 1986, the energy firm's stated assets exceeded debts by $5 million.
That seemed more than enough to finance a reorganization - or at least repay creditors, pay lawyers and have some cash left over, lawyers involved in the case said.
But five years and hundreds of hours of litigation later, creditors charge that court battles have soaked up much of Endrex's real assets. Professional fees in the case have topped $1 million, about the same amount creditors believe they will have left to divvy up once attorneys close the case.
"(The attorneys) have eaten up the entire estate and not made any payments to creditors," said Pat Holloway, an attorney representing a client in a dispute with Endrex. "This has been going on for years and years. They've milked the estate for everything it's worth."
Endrex's story is a familiar one. Over the past five years, as the number of companies in bankruptcy more than doubled, fees for managing cases have skyrocketed - and creditors have begun to question whether the services purchased help them in the long run.
Lawyers and trustees in the area have collected $59.1 million over the past two years for bankruptcy work, according to fee records kept by the U.S. Bankruptcy Court Clerk. Attorneys say fees have mushroomed because the bankruptcy system is now a field where debtors and creditors play legal hardball rather than negotiate. Others say law firms fed the growth of fees by establishing bankruptcy divisions populated by litigators.
Meanwhile, the bankruptcy fee system has itself come under fire from auditors and others, who allege that some trustees and attorneys have abused it. Court and trustee audit records allege that several trustees and attorneys have collected fees that haven't been approved by bankruptcy judges and have drawn out litigation to generate work. …