Are fees in big bankruptcy cases in Manhattan and Delaware converging? A comparison of the five largest bankruptcies of 2009 in each venue showed that New York led Delaware in pay for debtor attorneys by a mere $8 per hour.

According to data from pipeline.thedeal.com, the average hourly rate for debtor attorneys in cases filed in Manhattan -- Chrysler LLC, Lyondell Chemical Co., General Growth Properties Inc., CIT Group Inc. and General Motors Corp. -- is $913, versus $905 for the largest cases in Wilmington -- Capmark Financial Group Inc., Nortel Networks Inc., R.H. Donnelley Corp., Smurfit-Stone Container Corp. and AbitibiBowater Inc.

That's the narrowest margin since we first did a pay study in 2001, comparing 1990, 1995 and 2000, then repeating it in 2005 and 2009. Just as interesting, perhaps, is that the $68 gap in 2009 between associates in the two venues ($672 in New York versus $604 in Delaware) and the $46 difference among paralegals ($273 in New York versus $227 per hour in Delaware) represent the widest in the five years studied.

Not that anyone is suffering. Nowadays, debtor attorneys -- such as Deryck Palmer of Cadwalader, Wickersham & Taft LLP in the Lyondell case -- make $1,050 per hour. Not surprisingly, that's well above cases pipeline.thedeal.com looked at in 2001, when top earner Harold Novikoff at Wachtell, Lipton, Rosen & Katz billed $675 per hour in W.R. Grace & Co.'s Delaware case.

Lynn LoPucki, Security Pacific Bank professor of law at the UCLA School of Law, calculates that bankruptcy fees have risen 8% to 10% annually for the past five years nationwide, regardless of court. That is about double the inflation rate and is on par with rising healthcare costs, he says.

Bankruptcy lawyers interpret that increase differently. They say the work is getting harder and requires longer hours. "The biggest differences between 2005 and 2009 are the size of the matters, the complexity and the number of large cases filed," says Richard Cieri of Kirkland & Ellis LLP, who charged $795 per hour to work on Calpine Corp., one of the biggest New York cases in 2005. "Cases now are much larger."

Another New York bankruptcy attorney agrees. "Bankruptcy cases these days have become more and more complicated. Cases are also shorter, with several large companies emerging in months instead of years. Our partners and associates are doing more and more work per hour."

Palmer, for example, logged 1,428 hours over the first eight months of Lyondell's bankruptcy. He's not even the top. Adam Plainer of Jones Day, a debtor counsel for Chrysler, is based in London and is billing $1,175 an hour (the weak U.S. dollar likely factors in, too). But because his part of the case consumed only 15.9 hours, we're not including him in our analysis.

Still, bankruptcy attorneys can't deny they've seen a healthy bump in hourly rate. The highest earners for the largest 2005 cases in New York and Delaware -- N. Lynn Hiestand and J. Gregory Milmoe of Skadden, Arps, Slate, Meagher & Flom LLP -- each billed $835 per hour for their work in Refco Inc.'s New York bankruptcy. Palmer's rate is 26% higher, far beyond the rate of inflation.

"The rates reflect the tremendous increase in demand," Cieri says.

Milmoe himself believes bankruptcy attorneys still may not be getting their due. "I do not think that bankruptcy fees have gone up compared to other legal fees," he says, pointing to a study in which several M&A lawyers are charging more than $1,100 per hour. "To the contrary, I think bankruptcy fees are lagging behind increases in other fees, on a per-hour basis."

LoPucki isn't sympathetic. "There's no one controlling rates," he says. "The debtor doesn't have much incentive to control fees, since a lot of it is essentially being paid by the creditors. The court can't control fees, because the cases would simply go elsewhere. Put yourself in the judges' position. If all of the judges in New York got together and said, 'We're going to draw a line on fees,' lawyers will take cases to Delaware."

Partners are not the only ones reaping the benefits of higher billing. Associates who do a significant portion of the work have also received a boost in salary. Reuven Falik, an associate at Paul, Weiss, Rifkind, Wharton & Garrison LLP working on the Delaware bankruptcy of AbitibiBowater, billed at a rate of $660 an hour, 33% more than the $495 that Marion Quirk of Skadden charged for serving in a similar role in the 2005 Delaware case Birch Telecom Inc.

The same increases extend to paralegals. Cadwalader is billing $385 for Wendy Kane in Lyondell, the most in the 2009 cases we looked at. That's 60% higher than the top rate for 2005 cases -- the $240 that Kirkland billed for Beth Friedman in Calpine.

The pay scale in Delaware seems to be growing faster than New York. The highest-earning debtor counsel in Delaware billed an average of $905 per hour, a 21% higher clip in 2009 than the $747 of 2005. New York cases saw a 17% rise to 2009's $913, from 2005's $779.

Top associates fared the best. Delaware associates are earning 45% more today than in 2005, with their average rate for five cases rising to $604, from $417. Associates in New York saw a 44% increase in pay ($672 in 2009 versus $468 in 2005).

The boost for paralegals mirrored the partners. In Delaware, the $227 per hour average in 2009 was 27% above the $179 in 2005. In Manhattan, the $273 average rate in 2009 was an impressive 52% higher than the $180 four years earlier.

What associates and paralegals are billing is noteworthy, since they amass more billable hours than partners. One reason for this, Milmoe says, is that "partners delegate work down for cost efficiency." Assigning paperwork to a paralegal billing $150 an hour is more cost efficient than having a $950 per hour partner deal with it.

In 2005, Manhattan had only a $1 an hour edge in paralegal pay. The fact that the gap has widened to $45 is probably attributable to Manhattan attracting many more cases.

It's something that Delaware, which once eclipsed Manhattan as the dominant bankruptcy venue, is painfully aware of. "Of course, they compete for the big cases," LoPucki says. "Big-case bankruptcy is a business for Delaware. It's an important industry for the state. In New York, it's an important industry for the bankruptcy community. Neither jurisdiction wants to lose big cases."

Neither really has. In 2005, of the 10 largest Chapter 11 cases, six were filed in New York and one was filed in Delaware. Their dominance has grown in 2009; of the 10 largest Chapter 11 cases, six were filed in Manhattan and three were filed in Delaware.

That means hourly pay for partners, associates and paralegals is likely to keep growing in both places.

See the complete Bankruptcy & Restructuring Special Report