By Ryan C. Wood
One of the questions I get asked the most during a consultation with a potential client is, “Can I pay some of the attorney fees now and then pay the rest after my bankruptcy case is filed?” The question is understandable since we are dealing with filing for bankruptcy. It would not be a stretch to say that most of our clients do not have the funds upfront to pay for the attorney fees and costs. If they had the money just lying around they probably would not have to file for bankruptcy. In order to understand the answer you would need to know a little bit about how bankruptcy works. The answer would also be different depending on whether you are filing a Chapter 7 or Chapter 13 bankruptcy case.
Chapter 7 Bankruptcy Cases
Everyone you owe money to on the day you file for bankruptcy is considered to be a creditor in your bankruptcy petition. As soon as you file for bankruptcy there is an automatic stay in place that prevents any of your creditors from trying to collect any money from you. They cannot contact you, send you any mail, or pursue any legal action against you once they receive notice that you have filed for bankruptcy. This is one of the most powerful tools of bankruptcy. The automatic stay is why most people file for bankruptcy: to get relief from their debts and their debt collectors. If you only pay some of the attorney fees prior to your Chapter 7 bankruptcy filing, your Chapter 7 bankruptcy attorney cannot legally ask you to pay the rest after your Chapter 7 bankruptcy case is filed. The debt you owe your Chapter 7 bankruptcy lawyer is included as part of the general unsecured non-priority debt. This is the same category your credit card debts, medical bills, personal loans, and other unsecured debts are included in. These debts will be discharged if you are eligible for a Chapter 7 discharge. If your bankruptcy attorney tried to collect the debt you owe to him or her, the bankruptcy attorney would be violating the automatic stay and may be sanctioned by the court. You can always voluntarily repay the debt if you choose to do so but your bankruptcy attorney cannot ask you to repay the debt. You need to be very wary of the attorneys who promise you that you can pay them after your bankruptcy case is filed. You need to know your rights and be sure the attorney is not violating the automatic stay.
In addition to the automatic stay, there is a conflict of interest when you only make a partial payment to your attorney prior to the filing of your Chapter 7 bankruptcy case. The conflict of interest arises because your attorney is now also a creditor in your bankruptcy case. The Chapter 7 trustee and U.S. trustee looks at cases where you owe money to your attorney very carefully. In many jurisdictions owing money to Chapter 7 bankruptcy lawyers is prohibited and your bankruptcy attorney will not be able to collect any of the remaining balance after your case is filed. The Ninth District has ruled that “reasonable fees for post-petition services is not a dischargeable debt and may be collected in the course of the bankruptcy without violating the automatic stay.” In re Sanchez, 241 F.3d 1148 (9th Cir., 2001). This means that your attorney may charge you for services that they provide you after your bankruptcy case is filed. It is a good idea to make sure the fees, whether hourly or flat rate, are listed in your contract so you know exactly what you are paying for and when you will be paying for it.
Chapter 13 Bankruptcy Cases
Chapter 13 bankruptcy cases are treated differently than Chapter 7 cases. Chapter 13 bankruptcy cases are repayments plans. You will pay a monthly amount as part of your Chapter 13 plan to the Chapter 13 trustee. Attorney fees here are considered an administrative expense and can be paid as part of the Chapter 13 plan. Therefore, you would be able to pay partial attorney fees to your bankruptcy attorney and have the remaining balance be paid as part of your Chapter 13 plan.
Even if your attorney does not accept payments after your bankruptcy case is filed (and most would not), you should look for an attorney that would be flexible with their payments PRIOR to filing bankruptcy. There are some attorneys that allow you to make monthly payments or are very flexible with the payment schedule. Once you finish paying their fees in full they can help you file your bankruptcy case. This is perfectly legal and is a recommended for people that are on limited income. You should consult with these attorneys and ask them if they have flexible payment plans prior to retaining their services to help you with your bankruptcy case.