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Sixth Circuit Permits Administrative Claim for "Substantial Contribution" in a Chapter 7 Case

In Mediofactoring, et al. v. McDermott, creditors applied for administrative claims seeking payment of attorneys' fees and costs on the basis that they had substantially contributed to a Chapter 7 bankruptcy case. The creditors argued that their successful removal of the original Chapter 7 trustee for misfeasance and resulting settlement by the new Chapter 7 Trustee against the former significantly increased the amount of funds available for distribution. Both the bankruptcy court and district court agreed that the creditors had contributed substantially to the settlement. However, the bankruptcy court held that the statutory language of 11 U.S.C. 503(b)(3)(D), which authorizes an administrative claim related to a "substantial contribution in a case under chapter 9 or 11" of the Bankruptcy Code, did not apply in a Chapter 7 case. The Sixth Circuit disagreed, holding that the prefatory language of Section 503(b) permitted the claim and explained that the enumerated subsections of Section 503(b) are non-exhaustive examples of expenses warranting administrative treatment.

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