Having an experienced bankruptcy attorney handling your case is imperative to obtaining the best possible results and the maximum discharge of your debts. An attorney will help ensure that you meet all requirements for disclosures, filings, and hearings so that your case can be resolved efficiently and without complications. What you may not realize is that bankruptcy laws also set out requirements for attorneys throughout the case.
One important requirement is to fully and accurately disclose all fees paid to or charged by the attorney to the court. These are fees charged by your attorney for their time and work and are in addition to both the filing fees you will have to pay to the court and monthly payments as part of a bankruptcy reorganization plan. There are specific procedures that your attorney must follow to do so, using specific court forms,1 and such requirements are important to protect your rights.
The attorney’s fees already paid and also to be paid in the future must be disclosed to the court in writing and must be signed by the attorney. This is different than other disclosures that require the debtor’s signature. This includes all fees made within the year before the case was filed and the attorney must continually disclose all newly charged fees if complications arise in the case. There are three different times when an attorney must file such disclosures:
In some cases, only one initial disclosure will be necessary as a debtor will simply pay a flat fee prior to filing. In other, more complex cases, multiple disclosures may be necessary.
Once an attorney files a disclosure for agreed-upon fees, the bankruptcy trustee will review the disclosure and has the opportunity to object if the fees do not seem reasonable. If the trustee objects, the law2 gives the bankruptcy court “the responsibility as well as the authority to determine the amount of compensation that is reasonable for a debtor to pay for legal services rendered in a bankruptcy proceeding.”
Disclosure and review of bankruptcy attorney’s fees is required for a couple of reasons. First, the bankruptcy court wants to ensure that a filer is not hiding assets by transferring money to their attorney under the guise of fees. This is important for asset liquidation in Chapter 7 as well as approving a payment plan in a Chapter 13 case. In addition, the requirement is also meant to protect consumers who are already in a difficult financial place. Consumers who may not know better can agree to pay unreasonably high attorney’s fees out of desperation to regain control of their finances and escape from overwhelming debt.
Attorney fees for bankruptcy can vary widely from firm to firm and region to region. These fees have generally increased since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCA),3 which requires attorneys to perform extra tasks in certain cases, thereby leading to higher fees. The United States Government Accountability Office (GAO) reported4 that the cost of an average Chapter 7 increased to $1078 from $712 in only two years after BAPCA, while the average Chapter 13 fee increased by 55 percent over the same time period. However, the fees can be higher in larger markets–such as New York–and can be increased if your case has significant complications.
For example, if your Chapter 7 bankruptcy case is straightforward with few assets, the fees will be on the lower side. On the other hand, if your case involves allegations of fraud, contests from creditors, or other adversary proceedings, your attorney will have to devote more time to defending against such claims and your case will cost substantially more. Therefore, the reasonableness of fees must be decided by the courts on a case-by-case basis.
Federal law5 requires that the court examines certain factors to determine the reasonableness of fees, including the following:
Time the attorney spent on the case;
The rate charged for the attorney’s services;
Whether all services were beneficial and/or necessary to the case;
Whether the attorney spent a reasonable amount of time on the services depending on the complexity of the matter;
The attorney’s experience or certification in the bankruptcy field;
How the fees compare to other fees in similar cases;
The type of bankruptcy case filed.
These factors can lead to widely varied determinations of reasonableness in each case. For example, in one case reviewed by United States Bankruptcy Court for the Northern District of New York,6 the court reviewed whether $3,500 was a reasonable fee in a Chapter 13 bankruptcy case. On the other hand, the Supreme Court of the United States (SCOTUS) heard a case7 last year in which fees of $120 million had been deemed reasonable. However, that was a complex corporate bankruptcy involving many different legal issues compared to a relatively standard consumer bankruptcy in the first case.
A close examination of fees does not always occur. Many courts have set a limit under which a fee is presumptively considered to be reasonable.8 If an attorney discloses a fee under this set amount, it will likely be automatically approved.
When you are selecting the right bankruptcy attorney, fees will likely be an important factor. You should not have to overpay an attorney to handle your case, especially since you are already facing financial issues. If you think certain quoted fees are too high, you should always consult with another experienced bankruptcy attorney to compare. That being said, it should also concern you if a bankruptcy attorney is charging too little to handle your case. Law firms that charge budget rates often complete budget work and your case may not receive the attention it deserves so that you receive the most favorable results possible. Low fee advertisements can also be deceptive and you may learn the cost is greater later on in your case.
At the Law Office of Ronald D. Weiss, P.C., we charge reasonable fees for the highest quality of work on your bankruptcy case in and around Long Island, Suffolk, and Nassau. We fully understand and comply with all laws regarding disclosure of the fees you pay so that your rights against overpayment are protected. If you are considering bankruptcy and would like to discuss the specifics regarding a potential case and fees, please call us at 631-271-3737 or email us for a free consultation.