A professional seeking to represent a debtor under Bankruptcy Code section 327(a) must not hold an interest adverse to the bankruptcy estate and must be disinterested.  

A debtor’s insiders often cannot satisfy these tests. The Bankruptcy Code defines “insider” to include a “relative” of the debtor. And a “relative” is someone related to the debtor “within the third degree” as determined by the common law.

What does this latter phrase mean and how is it applied?

In a recent case, a chapter 11 debtor sought to employ an accounting firm under section 327(a). The principal of the accounting firm was the first cousin of the owner of the debtor corporation.

The U.S. Trustee objected to the retention, arguing that the debtor’s cousin was an insider. But the bankruptcy judge disagreed.  

In a detailed statutory analysis, the court explained why it concluded that the first cousin was not an insider. In re Brooks Custom Application, LLC, No. 25-13062, 2026 WL 1328430 (N.D. Miss. May 7, 2026).

The debtor operated a “custom application business that sprays chemicals and spreads fertilizer, lime and chicken litter.” For 23 years, its accounting firm had handled the debtor’s “payroll, monthly financial statements, tax work, and related accounting services.”  Id. at *2.  

The debtor filed chapter 11 in September 2025. At the petition date, the accounting firm was owed $35,536 for services performed prepetition. After the bankruptcy case was filed, and without court approval, the debtor paid the accounting firm a retainer of $15,000.

In its objection to the retention, the U.S. Trustee argued that (i) the accounting firm was not disinterested because the cousin was an insider of the debtor, (ii) the accounting firm was also not disinterested because it held a claim against the bankruptcy estate due to the unpaid prepetition work, and (iii) the accounting firm’s retention application should be denied because the postpetition retainer was improper because it had not been disclosed by the

The court addressed each of these arguments in turn. Bankruptcy Code section 101(14) defines a “disinterested person” as one who is “not a creditor . . . or insider of the debtor” and “does not have an interest materially adverse to the interest of the estate.” 11 U.S.C. § 101(14)(A), (C). A “relative” under section 101(45) is an “insider” under section 101(31).  And, as noted above, “relative” means someone “within the third degree as determined by the common law.”

But the court observed that the Bankruptcy Code “does not define ‘common law’ in this context, and there is no general federal common law.” 2026 WL 1328430, at *5. The debtor argued that the common law referred to the civil law of the state in question, Mississippi. The U.S. Trustee argued that the court should apply the cannon law to the computation of consanguinity.

Under civil law, first cousins are related in the fourth degree. “[O]ne ascends from one cousin to the common grandparent then descends to the other cousin. That is one step to the parent, a second to the grandparent, a third to the uncle or aunt, and a fourth to the cousin.”  Id. at *6.

For three reasons, the court opted to apply the civil law. First, the court said the “statutory text itself is limiting.” The statute refers to someone “within the third degree.” It does not say “family member” or “close relation.” The court noted that “[a] method that transforms first cousins into third-degree relatives broadens the statute rather than construing it narrowly.”  Id., at *6. 

Second, the court said cases applying the cannon-law method “arise[] from context-specific policy choices, most notably in preference law.” Concerns about equal distribution policy in that context do not exist in a section 327(a) analysis, which has its own “independent safeguards” for a bankruptcy estate, “i.e., disinterestedness and adverse-interest analysis.”  Id.

Finally, the court observed that the “civil law method better respects the structure of § 327(a).”  Treating first cousins as relatives would lead to retention objections in “many rural and family-operated business . . . in settings where the actual question is not kinship alone but whether the proposed professional can exercise independent judgment.”  Id.^[i]

The court also noted that even if the cousin of the debtor were considered a “relative,” “that would not end the analysis.” An insider is not automatically disqualified from representing a debtor. The court would also need to consider whether, under the specific facts at issue, the relative was or was not disinterested and if it did or did not hold an adverse interest against the estate.

In this case, the court said both tests could be satisfied. “[T]he question is not simply whether the relationship exists but whether that relationship creates a meaningful risk that the professional’s judgment or loyalty will be impaired. Here, the Court does not see that risk.” Id., *7. 

The accounting firm was not a one-person shop. It had 33 employees that performed “routine but essential accounting functions.” In the bankruptcy case, all of its work would be “subject to oversight by the Court, the United States Trustee, and parties in interest.” Id. 

The court also overruled the U.S. Trustee’s two other objections. The accounting firm could not be disinterested if it held a $35,536 prepetition claim against the bankruptcy estate. But the debtor informed the court that the accounting firm had waived the claim.

The postpetition retainer the debtor paid the accounting firm without court approval was improper because the debtor had not complied “with the procedural requirements governing professional employment and compensation.”  

But, going forward, the accounting firm’s compensation would be “subject to review under Bankruptcy Code §§ 330 and 331.”  Id. at *9. As a result, the court approved the accounting firm’s retention application under section 327(a).