What Are Interim Expenses and How Are They Paid?

Interim expenses are payments for necessary costs that arise during a lengthy legal or administrative case, paid before the matter is fully resolved. These payments are common in proceedings like corporate bankruptcies or the administration of a deceased individual’s estate. The purpose is to ensure that services and preservation efforts do not halt due to a lack of funds while waiting for a final judgment, allowing for the orderly continuation of operations.

Common Types of Interim Expenses

Interim expenses fall into two main categories: professional fees and costs related to preserving assets. These payments ensure that the administrative functions of the case continue smoothly and that the value of any involved assets is protected.

Professional fees are a significant component, covering compensation for specialists required to manage the case. This includes attorneys who handle legal filings, accountants who manage financial records, court-appointed trustees who oversee proceedings, and appraisers who value assets. These professionals must receive court approval to be retained before their fees can be considered for payment.

The other category involves costs for preserving and operating assets. For an estate, this could include making mortgage payments, paying property taxes and insurance, or covering utility bills to prevent foreclosure. If the case involves an operating business, such as in a Chapter 11 bankruptcy, these expenses cover day-to-day costs like employee wages, rent, and payments to suppliers.

Information Required for an Interim Expense Request

To receive payment for interim expenses, a formal request must be submitted with detailed documentation that justifies every cost. This information is compiled into a formal court document, often titled a Fee Application or a Motion for Payment of Administrative Expenses, to provide transparency to the court and all interested parties.

The foundation of the request is itemized proof of services and costs. For professionals like attorneys or accountants, this means submitting detailed time records. Each entry must specify the date the service was performed, a clear description of the task, the time spent on the task, and the hourly rate of the professional.

For reimbursement of direct costs, original receipts and invoices are required. This includes everything from court filing fees and deposition transcripts to travel expenses. Each submitted receipt must correspond to a specific line item in the expense report, and the request must demonstrate how each cost directly contributed to the administration of the case.

The Approval and Payment Process

Once the fee application is prepared with its supporting documentation, it must be formally filed with the court or administrative body overseeing the case. This action initiates the formal review process, and a specific legal procedure must be followed to ensure fairness.

After filing, notice must be provided to all interested parties. In a bankruptcy case, this includes the debtor, the U.S. Trustee, and creditors. In an estate administration, heirs and beneficiaries must be notified. This notice gives these parties a timeframe, often 21 to 30 days, to review the request and file an objection if they believe a cost is unreasonable or improper.

If no objections are filed within the designated period, the court may approve the request without a formal hearing. The judge will issue an order authorizing the payment of the approved expenses. If an objection is raised, the court will schedule a hearing where the requesting party must defend the expenses, and the objecting party can present their arguments. Following the hearing, the court will rule on which, if any, expenses are approved for payment.

Upon receiving a court order approving the expenses, the trustee, debtor-in-possession, or estate administrator is authorized to make the payment from the assets of the bankruptcy or probate estate. The payment is recorded in the case’s financial records, and the process may be repeated as new expenses accrue.