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Compensation of attorneys and professionals in the bankruptcy field is one of the most written about areas in bankruptcy law. Professionals, both familiar and unfamiliar with the mandates of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, are having an increasingly difficult time obtaining approval for the envisioned compensation. Problems generally do not arise for debtors' attorneys in the run-of-the-mill Chapter 7 case or Chapter 13 case. Flat fees are charged in most of these cases, and applications to employ debtors' attorneys are not filed. Therefore, retention orders are not entered. However, outside the run-of-the-mill Chapter 7 or 13 case, in Chapter 11 cases, or when an attorney or professional is hired for a special purpose under section 327(e), problems regarding the particular compensation may arise.

In the past, most courts used a traditional fee arrangement based upon reasonable hours and a reasonable rate, commonly referred to as the "lodestar" approach, when approving fees. Because the lodestar method is not always the desired fee arrangement, professionals are increasingly attempting to use various fee arrangements, which in the past were not commonly used by bankruptcy professionals. However, in the bankruptcy arena, these nonlodestar fee arrangements are confusing, inconsistently applied, and potentially dangerous to professionals.

Section 328(a) is a useful tool with alternative fee arrangements. Section 328 allows professionals to obtain court approval of the particular terms and conditions of employment at the beginning of a case. The preapproval of the terms and conditions under section 328 minimizes problems at the time the application for compensation is filed because bankruptcy courts must apply the terms of employment as approved, unless the terms prove to have been improvident in light of developments unanticipated at the time of entry of the retention order. This provides professionals a tremendous benefit: predictability of their compensation. However, professionals must properly seek and obtain a retention order under section 328(a) at the outset of their employment to enjoy the benefit of pre-approved terms and conditions.

The difficulty is that many lawyers and judges do not understand, or even realize, the impact of the useful tool provided in section 328(a). This generalization does not apply to all jurisdictions or bars; however, at the very least it appears that there is great confusion regarding the impact of section 328(a), particularly at the time of the application for compensation. This Article analyzes the history of section 328(a), its use and effect, and various alternative fee arrangements which have developed in bankruptcy practice.