If you are hiring an attorney to file bankruptcy you need to know how bankruptcy attorney fees are handled. Bankruptcy attorney fees in a Chapter 13 and in a Chapter 7 are reviewed by the Judge, the US Trustee and a panel Trustee to insure they reasonable and properly paid.
In a Chapter 7 bankruptcy, the attorney fees are supposed to be paid up front so the attorney is not in the unethical position of being both attorney and a creditor. He should only be worrying about your case. Not about how he needs to work around the court rules to get paid. He becomes a creditor if he is owed pre petition fees after the case is filed.
Unethical Bankruptcy Attorney Fees
One work around is to charge for reaffirmations and other services after the case is filed. That really does not save you money and it risks some work not being done. Some attorneys advertise a low initial up front fee or no money down filing fee. It is possible to pay the filing fee in installments. But what happens is the attorney pays himself often before the filing fee is paid. The attorney gets paid, the filing fee does not get paid in full. Then if he isn’t paid the case gets dismissed. Its a popular marketing tool. Its a fast way to build up a practice. But it isn’t having your client’s best interest covered.
Chapter 13 Bankruptcy Attorney Fees
In a Chapter 13 bankruptcy case, you are allowed to pay some or all of your attorney’s fees through the Chapter 13 plan. Some lawyers allow you to pay their full fee through your repayment plan, without paying anything up front. But most attorneys require an initial payment or couple of plan payments to prove to the court that you will make payments during the plan. This tends to prove the plan is feasible. This also insures he will be paid at least part of the attorney fee. This is especially needed if you have not been making mortgage or car payments for some time.
This initial Chapter 13 plan payments is often about what a Chapter 7 fee is. The Filing fee for a Chapter 13 ($310 in 2017) is slightly less than the Chapter 7 filing fee ($335 in 2017) but we bill clients the same amount to cover the costs of mailing the Chapter 13 plan which are not required in a Chapter 7. The filing fees have not changed since 2014 and attorney fees have not gone up since about 2012.
Chapter 13 No Look fees
Most courts have a standard fee that the attorneys may charge for a Chapter 13 bankruptcy without the court reviewing it called a no look fee. Unless more than the standard work is required, attorneys are not allowed to charge more than this no look fee. After the Chapter 13 plan is confirmed the attorney may request additional fees if the case requires additional work. This is often caused by the client not making payments into the court on time or disobeying other rules. Making mortgage or plan payments late may cost a client over 1000 in attorney fees and court costs charged by the bank alone.
Chapter 13 no look fees are different for each judicial district. However, they are typically between $3,000 and $4,000 in Indiana and Kentucky. The good thing about Chapter 13 bankruptcy is that you often don’t have to pay the attorney fees upfront. You may however have to pay the first couple of Chapter 13 plan payments into the attorneys trust account. Attorneys will ask for either the plan payments or part of their attorney fee prior to filing a Chapter 13 case to insure the client actually plans to make the payments into the Chapter 13. How much your bankruptcy lawyer will require upfront depends on your case and how expensive the attorney is but a normal consumer case is probably looking at 1000 to 1500 plus the filing fee for filing a Chapter 13.
Chapter 7 Bankruptcy Attorney Fees
Attorneys’ fees in a Chapter 7 case must be paid before the case is filed. This is because your debts are discharged at the end of the Chapter 7 case. Any debt for an attorney fee you owe at the moment of filing is also eliminated. There may be work that you want done after the case is filed. If you cant attend a hearing or need to file an amendment that work happened after the case was filed and you pay for it when and only if you need it done later.
Normally, attorney fees in our office for a single Chapter 7 bankruptcy are $1200 and $1400 for a couple. For years the average Chapter 7 has cost about the same as an average refrigerator. Larger firms with large advertising and overhead costs charge more than a solo attorney. Less experienced attorneys will typically charge less or may take payments over time but they are more likely to violate the rules than an experienced lawyer. Sure it costs a couple of hundred more but you are less likely to lose property, your budget may be more comfortable and you may discharge more debt if you use an experienced attorney.
Complicated cases have higher fees.
Fees should be based on how complicated a case is. Don’t make it more complicated than it has to be. Unless you have to file a motion to redeem or strip a lien it is rare for you to need additional work in a Chapter 7 after the case is filed. If you create more work by missing a hearing or failing to take your debtor education it will cost more. People with a lot of assets will need more work done in their case and will have to pay more in attorney fees than an unemployed person with no assets
When you pay your bankruptcy attorney depends on whether you file a Chapter 7 or a Chapter 13 bankruptcy. How much you pay him and when you pay him has to be disclosed. The attorney cannot be a creditor in a Chapter 7 and can’t demand payment from you after the case is filed for pre-petition work. If he does he can be sanctioned by the court.
Here is audio which is almost an hour long of a judge punishing a Louisville attorney and over 30 of his clients for paying attorney fees in cases after the cases were filed. The young lawyer probably thought it was great advertising. It brought him a lot of clients. But cases were dismissed or had hearings to dismiss them due to these schemes.
You can stop the harassing phone calls by hiring the attorney and paying the fees in payments plans before the case is filed. But paying the filing fees in installments, filing skeleton petitions and paying the attorney after the case is filed draws attention to your case for fraud. If you can pay the attorney after the Chapter 7 case has been filed you can pay your creditors and you should be in a Chapter 13.