Category Archives: Attorney Fees and Bankruptcy

How Can I Pay Bankruptcy Attorneys Fees to File a Chapter 7 Bankruptcy Case?

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It is inevitable that my clients ask me the question of whether I can file their bankruptcy case for them with $0 money down or at least a partial payment with the rest to be paid after their case is filed. I understand the need some of my clients have when they are asking this question. Obviously if they have to file for bankruptcy they may not have the funds to hire an attorney but they may still need to urgently file, either because they have a looming wage garnishment or their car was repossessed and they need to file their bankruptcy case before their car is auctioned off. They are stuck in a catch 22: if they do not file for bankruptcy, their wages get garnished or their car is auctioned off and they will have even less money. It is a never-ending vicious cycle. Filing for bankruptcy immediately and then paying the bankruptcy attorney back after the case is filed may seem to be a solution. Unfortunately that solution is not a viable option in Chapter 7 bankruptcy cases for several reasons:

Violation of Automatic Stay

The automatic stay prevents all collection activity against you after your bankruptcy case is filed. That means no creditor can call you, harass you, go after you for any debt, file or continue a lawsuit against you, continue any wage garnishments, repossess your car, or any other activity that is considered trying to collect a debt from you. Whomever you owe money to is considered a creditor. That includes your bankruptcy lawyer if you still owe him or her money after your bankruptcy case is filed. Your legal obligation to repay the dischargeable unsecured debt in your bankruptcy case is gone. You are therefore not legally obligated to pay your bankruptcy attorney and they will be essentially working for free in your case. If they try to collect from you they are violation the automatic stay. This is not to say that they cannot charge you for any post-petition work that comes up in your case that was not bargained for in your initial contract (such as representing you in an adversary proceeding in your bankruptcy case). The attorneys just cannot charge you for the work they did prior to the filing of your bankruptcy case.

Conflict of Interest

Another reason why attorneys cannot accept no money down or partial payment option is the fact that it is a conflict of interest for them to do so. How is it a conflict of interest? As indicated previously if you owe money to your bankruptcy attorney they are considered a creditor in your case. Well, you cannot be both an attorney and a creditor in the Chapter 7 case because there is potential for conflict to arise. How will you know whether the attorney is acting in your best interest (to discharge all your dischargeable unsecured debts) or in their best interest as a creditor (to collect what is owed to them)? It is an ethical violation for them to represent you in your bankruptcy case if there is a conflict of interest.

Attorney Fees Can Be Paid By a Third Party

If you need to file for bankruptcy under Chapter 7 and do not have the money to pay attorney fees you can have a third party pay the fees and costs. A friend or family member may help you and pay your attorney fees and costs. It has to be disclosed that a third party paid the fees and the third party cannot have any control of the bankruptcy case. Sometimes when a party pays the fees and costs they think they have a right to be involved and influence the bankruptcy filers decisions. Just because someone pays the fees and costs of another does not mean they are a client. The third party payor is not the client. It is a good idea to have the third party payor and client sign a disclosure regarding the payment of the attorney fees and costs.

File A Chapter 13 Case Instead

Payment of attorneys’ fees and costs is different in a Chapter 13 reorganization case. In a Chapter 13 case attorneys’ fees can be paid through the Chapter 13 plan. If the attorneys’ fees are $4,000 and the Chapter 13 plan is 60 months, then about $67 of your Chapter 13 plan payment will go to your attorney to pay their fees once the Chapter 13 plan is approved by the bankruptcy court. Most bankruptcy lawyers will ask for a portion of the attorneys’ fees upfront ($1,000 before filing the case for example) and then rest of and the majority of the attorneys’ fees in the Chapter 13 plan (Remaining $3,000 in Chapter 13 plan). So, you may be able to find an attorney that is willing to do a lot of work for a very little amount of money, then be paid the rest of the attorneys’ fees through the Chapter 13 plan.

If you cannot pay your bills on time each month do not wait to speak with a bankruptcy attorney

If you cannot pay your bills on time each month do not wait to speak with a bankruptcy attorney

Do Not Wait Until The Last Minute to Seek Counsel

So how can you avoid this impossible situation of needing to file bankruptcy immediately but not having enough money for a bankruptcy attorney? The best way to go about filing for bankruptcy is to plan it in advance. Do not wait until the last minute to file for bankruptcy. At the first sign that you are having financial difficulties and may not be able to repay your obligations you should consult with a bankruptcy lawyer. Many law firms provide payment options so you can pay them in installments. They can file your bankruptcy case after all the fees are paid. It may take several months, but you can file for bankruptcy afterwards and obtain that coveted fresh start. If you wait until you receive the wage garnishment orders it will be too late. While there are plenty of lawyers that accept installment payments, there are also plenty of law firms that do not. You should ask the firm before scheduling an appointment with them whether they accept installment payments or not.

Can I Pay the Attorney Fees After I File Bankruptcy?

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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.