Bankruptcy refers to a legal process in which a person or business resolves specific debt with creditors. This is done to provide the debtor with a sort of fresh start in financial terms. The process also helps creditors establish their rights on certain claims.
Generally speaking, creditors are not allowed to collect on debts once the debtor has filed for bankruptcy. Creditors are to wait until the bankruptcy process has completed in order to resume any collection efforts. This is known as an automatic stay, and is partially intended to allow for debt debt payment terms to be reevaluated and reorganized during the bankruptcy process.
According to bankruptcy law, in terms of a debtor’s discharge, a discharge is a statutory injunction. It is against continued collections or other attempts to recover or offset a debt as the debtor’s personal liability. During bankruptcy proceedings, the debtor and the court work together to determine a plan in which the creditor is repaid as much as possible. In exchange, the debtor no longer has any legal liability for the remainder of their owed debt. The remaining debt is discharged, meaning, the debtor is not legally responsible for paying what has been discharged.
Attorney fees for bankruptcy, as well as other fees, will vary greatly due to various factors. Some such factors include:
- Filing fees based on the type of bankruptcy being filed;
- Trustee and consumer credit counseling fees; and
- The demographics of the various districts in which each attorney practices.
Are Attorney’s Fees Dischargeable?
When determining attorney’s fees in order to represent a client in a bankruptcy proceeding, the following will most likely be considered:
- How complex the case is, such as those involving a considerable amount of property;
- The client’s income;
- Whether the client is filing for bankruptcy under Chapter Seven or Chapter Thirteen;
- The experience level of the attorney or law firm; and
- The geographical region, as attorneys in New York are more likely to charge a higher rate than a similar attorney in North Dakota.
Bankruptcy attorneys most commonly charge on a flat fee basis, or an hourly basis. Generally speaking, the more complicated the case, the more the attorney will charge. The exception to this would be a Chapter Thirteen bankruptcy filing. Additionally, if a client has a steady income, they will likely pay more in attorney’s fees than an unemployed individual with little or no assets.
Finally, Chapter Seven and Chapter Thirteen follow very different guidelines in regards to how much an attorney can charge for their services:
- Chapter Seven: Under Chapter Seven, attorneys should base their fee on how much time and effort will go into preparing the bankruptcy papers. Unlike Chapter Thirteen, in which the courts limit the permissible fees, the cost for Chapter Seven is left up to the attorney preparing the case. Those filing a Chapter Seven bankruptcy can expect to pay anywhere between $500 and $4,000
- Chapter Thirteen: Under Chapter Thirteen, bankruptcy courts limit how much an attorney can charge for their services. Additionally, an attorney must justify why their rate should be increased. An example of this would be if additional work needs to be done. The entire fee is not required upfront. The common cost for a Chapter Thirteen bankruptcy can range anywhere between $2,000 and $6,000.
In cases involving personal bankruptcy, most debts are dischargeable. This includes unpaid attorney’s fees. Bankruptcy Code Section 523 lists fees that are not dischargeable. Fees that may not be discharged include, but may not be limited to:
- Child support;
- Debt incurred through fraud or false pretenses;
- Luxury items purchased immediately before filing for bankruptcy;
- Government educations loans;
- Medical costs from driving under the influence or while intoxicated;
- Reckless failure to pay debts; and
- Court fees and other court costs.
As the current bankruptcy attorney’s fees are included in what constitutes court costs, that attorney will be paid. In contrast, those attorneys that were hired by the debtor prior to the bankruptcy are unlikely to be paid. It is common for attorneys with unpaid legal fees to file a complaint with the Bankruptcy Court by claiming that their attorney’s fees were non-dischargeable. However, such claims generally fail due to the fact that they are in opposition to the purpose of the process of bankruptcy. Again, the purpose of the bankruptcy process is to provide the debtor with a fresh economic start.
Recently, in response, attorneys are preparing in anticipation for their client’s bankruptcy proceedings. They do this by routinely maximizing their retainer (or down payment) while also encouraging their clients to file for bankruptcy prior to rendering any legal services.
What If I Filed for Bankruptcy after a Divorce?
Attorneys who specialize in family law commonly encounter problems when their clients file for bankruptcy immediately after going through divorce proceedings. Family attorneys have commonly argued that their fees are non-dischargeable based on the fact that they assist the client fulfill their duty to support their child. That itself is non-chargeable. The BAPCPA is a bankruptcy law that went into effect in October 2005, and has made the law considerably more strict regarding the non-dischargeability of family support obligations.
Courts may rule if attorney’s fees were not specifically ordered to be paid in the original child support decision, those fees are dischargeable in any subsequent bankruptcy proceeding. Although attorney’s fees are used to help collect spousal support, they do not go into the receiving spouse’s pocket; as such, they are not considered to be alimony.
Additionally, there is no justification for favoring family attorneys above other specialized attorneys who could be owed even larger debts.
Can I Discharge Fees or Fines Imposed By the Court?
Generally speaking, no, you cannot discharge fees or fines imposed by the court. Fines and other fees that have been imposed by the legal system are typically intended to be punitive. What this means is that they are designed to punish citizens for breaking the law. As such, it would be considered unfair to punish some citizens but not others simply because they cannot afford the penalty.
The only possible exception is if the fine or fee imposed by the court is not retributive or punitive in nature. An example of this would be in personal injury lawsuits. The damage award taken from the defendant is not intended to punish the defendant, but rather, to restore what was lost to the plaintiff.
It is possible to discharge attorney fees under the aforementioned circumstances. To put it simply, attorney fees may be discharged if they are not included in a court ordered fee or fine.
Do I Need a Bankruptcy Lawyer?
Bankruptcy laws vary from state to state, as well as what type of bankruptcy is being filed. Additionally, bankruptcy is an often complicated process that is occurring during a very emotional time in a person’s life. It would be in your best interest to consult with a skilled and knowledgeable bankruptcy lawyer.
An experienced local bankruptcy attorney will be aware of any laws or statutes that will affect your case, as well as provide you with advice regarding under which chapter of bankruptcy you should file. Additionally, they will represent you in court as needed.