Written by Craig D. Robins, Esq.
Bankruptcy fees practically doubled when Congress drastically changed the bankruptcy laws eight years ago, making bankruptcy more complex by creating a new means test and imposing a much greater burden on the attorney to verify information and prepare the bankruptcy petition correctly and accurately.
Most of our Long Island bankruptcy clients are able to pay the fees as they are working, but we are always asked if the fees can be paid over time.
With the most common type of bankruptcy, which is Chapter 7
, the Bankruptcy Code requires the attorney’s fee to be paid in full before the petition is filed.
Otherwise, any balance owed on the fee is technically discharged and the attorney is prohibited from collecting it. In addition, if the client still owes any funds to his or her attorney, there is a conflict of interest, as the attorney is now a creditor of the debtor as well.
The bankruptcy laws were designed to give the debtor an absolute fresh, new financial start with no prior debts still outstanding, even those owed to bankruptcy counsel. Chapter 7 bankruptcy law does not contain any provision that provides for payment of part of the fee after the petition is filed.
Bankruptcy fees on Long Island — When we have a Chapter 7 bankruptcy client who doesn’t have the full bankruptcy legal fee easily available, we are very amenable to working out an informal payment plan over a reasonable period of time. We just need to make sure the full legal fee is paid before the petition is filed with the bankruptcy court.
With Chapter 13
, a payment plan for legal fees can be entered into, as the essence of this type of case is having a payment plan to pay creditors. A Chapter 13 plan, in addition to providing for the distribution of payments to creditors, can also provide for the payment of part of the bankruptcy attorney’s legal fees.
Such payment plans are typically over a period of three to five years. One of the reasons such payments are permitted is that the court and trustee have the ability to review the balance owed for reasonableness.
Keep in mind that once you decide to seek bankruptcy relief, you will no longer be paying any of your credit card bills, so additional funds often become available.