Attorneys can charge for their services in many different ways. For instance, some law firms will charge a certain hourly fee for the amount of time spent working on a case. Others may charge a contingency fee, in which the lawyer takes a percentage of any amount awarded to the client. Many businesses pay an attorney a regular retainer to always keep them on hand whenever they need assistance with a legal matter. Bankruptcy attorneys, however, have little flexibility in the fees they can charge from their clients. This is because both the United States Bankruptcy Code and the bankruptcy courts carefully dictate and oversee attorney fees.
Reasons for Careful Review of Bankruptcy Attorney Fees
Bankruptcy filers are inherently in financial trouble already. Many filers may not be familiar with the work that goes into a bankruptcy case and they may be so desperate for financial relief that they are willing to agree to anything to achieve a successful discharge of their debts. Therefore, it may be too simple for a less-than-honest bankruptcy attorney to take advantage of the situation and over-charge for their services. For this reason, the law requires that all fees charged by bankruptcy attorneys must be “reasonable” as deemed so by the court overseeing the case. If the court finds that an attorney charged an unreasonable fee, it can refund part of the fee back to the bankruptcy client.
Fee-related bankruptcy laws are also in place to protect the interests of the attorneys. Many bankruptcy filers do not have the liquid capital to pay fees out of pocket and, historically, bankruptcy lawyers could handle a case for years without getting any compensation. To address this issue, the legislature included in the Bankruptcy Reform Act of 19781 a provision codified in Section 330 of the Bankruptcy Code.2 The section allows that attorney fees can be paid out of the bankruptcy estate instead of from the client’s pocket to ensure that individuals and businesses still have the ability to seek relief despite not having available capital and that attorneys will receive proper payment for their services. However, the bankruptcy trustee overseeing the estate will want to preserve as many assets as possible to pay toward creditors and others with claims on the estate. Therefore, attorney fees must also be reasonable when they come out of the estate.
Requirements for Fee Applications Under Bankruptcy Code Section 330
In order to seek compensation from the bankruptcy estate, an attorney must submit a fee application to the bankruptcy court. Rule 2016 of the Federal Rules of Bankruptcy Procedures3 governs the process and requirements for submitting fee applications. With the application, an attorney must include the following detailed information:
There are strict time limits for filing the above specific disclosures and declarations, whether or not an attorney is applying for a bankruptcy fee. Under Rule 2016, disclosures regarding any fees paid in the 12 months prior to the bankruptcy case should be filed along with the bankruptcy petition, with supplemental statements submitted within 14 days of future payments. Additional disclosures regarding fee-sharing arrangements should be submitted within 14 days of the court’s order for relief, with supplemental disclosures made as necessary.
Is a Requested Fee Reasonable?
Section 329 of the U.S. Bankruptcy Code4 gives the court the power to review attorney fee applications for reasonableness. If fees already paid were determined to be unreasonable, the court can refund certain funds back to the debtor, bankruptcy estate, or the entity that paid the fees. If the fee application is requesting payment from the bankruptcy estate, the court can reduce the amount requested as it sees fit to ensure all fees are reasonable.
A bankruptcy court can review many factors to determine whether a fee is reasonable and reasonableness will vary significantly from case to case. Some of the factors suggested by the bankruptcy code include:
For example, a bankruptcy attorney in New York will likely be awarded a higher fee than an attorney in the midwest, as the market allows for higher costs of legal services. In addition, a complex Chapter 11 corporate bankruptcy case will likely result in significantly higher fees than a standard Chapter 7 consumer bankruptcy. In addition to the above factors, courts have also ruled that additional factors may be considered when relevant, under decisions such as Johnson v. Georgia Highway Express, Inc.5
Because courts oversee hundreds of thousands of bankruptcy cases on an annual basis and the careful review of fees in each case can take time, many courts have created and published fee structures that are presumed to be reasonable, such as one Chapter 13 fee structure published by an Administrative Order in New York.6 However, even fees that are in line with the presumptive fee structure may be reviewed and the court is not required to uphold the presumption that a fee is reasonable in any specific case.
Call Today to Discuss a Potential Case with an Experienced New York Bankruptcy Lawyer
Making the decision to file for bankruptcy can be a difficult one and you want to make sure you have the guidance of an experienced attorney who thoroughly understands bankruptcy procedures and laws. However, since your financial future is in your attorney’s hands, it is equally important that you feel you can trust them to pay your case adequate attention and to charge you reasonable fees for their services. Unreasonable lawyer fees in a bankruptcy can only delay your case and place more stress on your situation when you should be focused on looking forward to your fresh financial start. At the law office of Ronald D. Weiss, P.C., you can trust you will receive the highest quality of assistance and representation in your bankruptcy case. Please call our skilled bankruptcy attorney for more information today at 631-271-3737.