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How Attorney Fees are Paid in Chapter 7 Bankruptcy

Foreclosure Bankruptcy1First, I am going to share with you the wrong way to pay for attorney fees in a Chapter 7 Bankruptcy. Paying the attorney fees in a Chapter 7 bankruptcy after the case is filed is not allowed by the bankruptcy court. Here is a 56 minute February 2015 audio of a judge sanctioning an attorney over not collecting attorney fees before the case was filed. 30 of his clients are now being hauled in for paying his fees after the case was filed. I know clients are used to paying over time. But paying attorney fees after you file draws attention from the judge that the attorney and the client may be lying in a Chapter 7 petition. If the client can afford to pay the attorney 200 to 300 a month he can afford to pay his creditors 200 to 300 in a Chapter 13 and need to be forced into a Chapter 13. Paying the attorney fees after a Chapter 7 is filed turns the attorney into a creditor and means he worries about whether he gets paid instead of worrying about the case and client. If the attorney fees are paid before the plan is filed then there are none of these ethical problems. Sometimes attorneys will pay themselves and let the case be dismissed for not paying the filing fee.

The average Chapter 7 consumer attorney fee in Kentucky is about $1200 dollars for a single person and $1400 for a couple. The filing fee on February 13th 2015 was $335. Clients think attorneys earn $1200 from the case. But salaries, rent, insurance, software etc. are costs that reduce what he makes to about $600 for a days work on each case. A Chapter 7 should cost about the same as an average refrigerator. Bankruptcy cases are in federal court. Federal court cases are harder to file than cases in state court and require higher standards. If the attorney does not collect his fee up front he adds work to the case because he now has to chase the money down on top of filing the case. As a result he often does less work in the case if he isn’t paid up front.

Sometimes attorneys will disobey the rules and take short cuts. We don’t. You don’t want us to. In rare cases the Court will allow very poor debtors and emergency cases to be filed as a skeleton petition (partially completed petitions) or will allow the filing fee to be paid in installments. But these and other tactics are often used as marketing tools by an attorney after the case is filed to collect money from his clients. Attorneys that do this pay filing fees last or file a skeleton petition and only complete the work after they are paid. The work is poorly done, finished late or not at all.

Save From Attorney Fees

Some consumers may not have learned how to save up for items so they like paying for items after they get them. But it often costs them in the long run and it really costs them if they pay their attorney fees that way. If the client doesn’t pay the attorney fee the attorney often just lets the case be dismissed by not paying the filing fee installment or fails to complete the petition. It means the client may have to file the same case twice and the attorney may earn his fee twice. The success rate for our Chapter 7 clients is over 95%. The success rate for attorneys who file skeleton and installment petitions have much lower success rates. Clients suffer as a result.

Here is a February 3, 2015 motion hour hearing where a judge spent nearly an hour sanctioning a debtor and his attorney in front of other attorneys. At the end she sends cases to the US Trustee to investigate both the attorney and the debtors. Several of his cases were subject to being dismissed due to allowing clients to make payments on filing fees or attorney fees after he filed the case. To give the client a low price you can always cut corners and do less work.   However as you can see with some practices it just makes more work for the client and the attorney and opens you up to having the court look over your petition and little more completely.