Before 2019, paying attorney fees after the case files in a Chapter 7 bankruptcy is no longer allowable by the bankruptcy courts. Here is a 56 minute February 2015 audio of a judge hauling both the attorney and his clients into court over not collecting attorney fees before their cases filed. In fact, 30 of his clients were hauled in for paying his fees after the case filed.
This is how those cases sometimes happen. Interestingly, some law offices file a skeleton petition so you can get all the benefits immediately. Then, the garnishments stop immediately, the bank attachments end, and the harassments stop because of the automatic stay. With those cases, the law office normally does little or no work until after the case files.
However, because the work is done after the case files, they can collect after the case files. But, the debt for their work does not discharge in the bankruptcy because it’s done after filing. These law firms advertise this as a zero or no money down bankruptcy. But unfortunately, the cost is higher. Most of these law firms charge from two to three times more than a standard fee!
No Money Down Attorney Fees in Chapter 7 Bankruptcy
In an emergency, our office can file a case with no money down. However, instead of costing a client about $1,535 to file for a single person, the cost paid over a year is about $2,000 dollars for zero down payments. We are lawyers, not debt collectors or bankers, so the debt is given to a finance company to collect.
Shopping for a cheaper or lower-cost attorney to file Chapter 7 bankruptcy often hurts. When firms advertise a lower cost, it normally means the debtor gets a lawyer with little experience. It is also a discriminatory practice that preys on minority clients.
Cheap Low-Cost Attorney Fees in Chapter 7 Bankruptcy
I know clients are often cash poor, and they like to pay overtime. But paying court costs or attorney fees after you file draws attention from the judge and the trustee. In fact, it gives the trustee an argument that they can use to force you into Chapter 13.
Here are a few reasons why this doesn’t work well for most people. First, to file the bankruptcy, the attorney and client are claiming the debtor cannot pay $150 to $200 per month to repay creditors. But then the client pays $200 per month to the attorney after filing. Do you see the discrepancy here?
In effect, they are lying in a Chapter 7 petition about how they are too poor to repay in Chapter 13. But, if the client can afford to pay the attorney $175 to $200 a month, he can afford to pay his creditors $175 or more in Chapter 13. As a result, the trustee and judge often believe these clients need to be forced into Chapter 13.
Paying the attorney fees after Chapter 7 files make the attorney a creditor. Of course, the law office also worries about whether they will get paid instead of paying close attention to the case and client.
However, if the attorney fees are paid before the plan is filed, then there are none of these ethical problems.
Chapter 7 Costs
In July 2020, the average Chapter 7 consumer attorney fee in Kentucky is $1,400 dollars for a single person and $1,600 for a couple. The court filing fee on February 13th, 2015, increased to $335. Clients think attorneys earn whatever the standard fee is from the case. Staff salaries, rent, insurance, software, etc. are costs that reduce what he makes to about $600 for a day’s work on each case. 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 more work and 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 upfront. Sometimes attorneys will take less time preparing the petition, disobey the rules, delay doing work, and take short cuts if he is not paid in full up-front. We don’t. You don’t want us to.
In rare cases, the court allows indigent debtors and emergency cases to file as skeleton petitions. These partially completed petitions often enable the filing fee to be paid in installments.
However, these and other tactics are commonly used as marketing tools by some attorneys. Studies show low-fee and no money down cases are much more likely to be dismissed or fail. Attorneys that do this pay the filing fee last or file the minimum petitions and only complete the work after they are paid. Then, the work is poorly done, finished late, or not at all. Clients often file multiple cases or lose homes.
Saving Attorney Fees
Some consumers may not have learned how to save up for items. They are accustomed to paying for services after they get them. But, this always costs them more.
For instance, if the client doesn’t pay the attorney fee, the attorney often lets the case be dismissed by not paying the filing fee installment or fails to complete the petition. Unfortunately, that means the client will have to file the same case twice. Naturally, the attorney charges his fee twice.
Please note that the success rate for our Chapter 7 clients is over 97%. But, the success rate for attorneys who file skeleton and installment petitions is much lower. Clients suffer as a result. The average petition is 60-80 pages long and takes 2-4 hours to prepare. The typical low-cost skeleton petition is just six pages long and takes 5 minutes to file. This is rarely an acceptable or successful alternative.
Here again is the February 3rd, 2015, motion hour hearing where a judge spent nearly an hour sanctioning a debtor and his attorney in front of other attorneys. In the end, she sends cases to the 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 paying 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 only makes more work for the client and the attorney and opens you up to having the court look over your petition. Therefore, cheap low-cost attorney fees in Chapter 7 Bankruptcy are not as affordable as you might think.
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If you are thinking about filing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.