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Personal Bankruptcy: Discharging Attorney's Fees
In personal bankruptcy, most debts are dischargeable – even unpaid attorney’s fees. Section 523 of the Bankruptcy Code lists fees that are not dischargeable. They include child support, alimony, debt that was incurred through fraud or false pretenses, luxury items bought right before the bankruptcy, government education loans, medical costs from driving drunk, reckless failure to pay debts, court fees, and other court costs.
Since the current bankruptcy attorney’s fees are included in court costs, she will get paid. But attorneys that the debtor hired prior to bankruptcy will probably not get paid. Often, attorneys with unpaid legal fees will lodge a complaint with the Bankruptcy Court, claiming that their fees were non-dischargeable. However, these claims have largely failed, because they run counter to the purpose of bankruptcy, which is to give the debtor a new economic start.
Family law practitioners, in particular, often run into problems when their clients file for bankruptcy immediately after divorce. Family lawyers have argued that their fees are non-dischargeable, because they help the client to fulfill the duty to support the child, which is itself non-dischargeable. BAPCPA, a recent bankruptcy law which went into effect in October 2005, made the law even stricter regarding the non-dischargeability of family support obligations.
However, courts rule that if attorney’s fees were not ordered to be paid in the original child support decision, then they are dischargeable in subsequent bankruptcy. In addition, there is no justification for favoring family lawyers above other lawyers who might be owed even greater sums of money.
In response to this, attorneys are now anticipating their clients’ bankruptcies. Attorneys are maximizing their “retainer” (down payment) and encouraging clients to file bankruptcy before legal services are rendered.
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