CHAPTER 7
ATTORNEY FEES
Protecting Debtors While Ensuring
Attorneys Get Paid
By Amanda A. Page
Page Law, PLLC
[email protected]
www.apagelaw.com
M
ost
debtors
that
are
contemplating a Chapter 7
are on the brink of economic
disaster. They have creditors harassing
them every waking moment, calling
them
nonstop,
garnishing
their
wages, garnishing their income tax
returns and seizing their vehicles to
satisfy judgments. These hardworking
individuals simply do not have the extra
funds to pay a bankruptcy attorney up
front in full to file a bankruptcy and to
stop the creditors. Alternatively, the
options for the unfortunate debtor are to
proceed file their bankruptcy pro se, hire
a bankruptcy petition preparer or to find
an attorney that accepts alternative fee
agreements. The debtor that attempts
to go it alone or with a petition preparer
faces a substantially greater risk of their
bankruptcy getting dismissed without
a receiving a Chapter 7 discharge. In
the Eastern District of Michigan, during
2010 and 2011 approximately 98% of
individual Chapter 7 cases filed by an
attorney received a discharge, while
only approximately 69% of Chapter 7
cases filed without an attorney received
a discharge.1
Attorney fees in a Chapter 7 have long
been a disputed and a contentious
portion of the Bankruptcy Code and
the Rule of Professional Responsibility
because bankruptcy attorneys must be
zealous advocates for their client while
attempting to keep their lights on in their
own offices.
Bankruptcy attorneys
attempts to creatively structure getting
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CONSUMER BANKRUPTCY JOURNAL
paid has been address by the U.S.
Supreme Court which has held in
Lamie v. United States that Ҥ 330(a)
(1) does not authorize compensation
awards to debtors’ attorneys from
estate funds, unless they are employed
as authorized by 11 U.S.C. § 327.”2
Further, the Bankruptcy Code in 11
U.S.C § 523 states that attorney fees
are not except from discharge and prepetition debts for legal fees are subject
to discharge pursuant to 11 U.S.C §
727.3 Consequently, pursuant to 11
U.S.C § 362, bankruptcy attorneys
are unable to proceed with any active
collection activity for pre-petition debt.
It is apparent that a bankruptcy
attorney will lead to a successful
Chapter 7, ensuring that the debtor
receives a discharge and obtains a
fresh start. Unfortunately, if the debtor
seeks counsel but is unable to pay
the entire attorneys’ fees, filling fees
and credit counseling fees up front,
it appears they might have run into a
road block to their fresh start. Creative
bankruptcy attorneys have attempted
to craft alternative fee agreements that
ensure that the debtor is protected from
creditors and that the attorneys are able
to receive their fees. The bankruptcy
attorney might agree to either one
fee agreement with payments to be
made pre-petition and post-petition
or a bifurcated fee agreement where
services and fees are split prepetition and post-petition. However,
these alternative fee agreements
Spring 2015
are challenged on many fronts in the
Bankruptcy Court as violating the
Bankruptcy Code and, in Michigan,
the Michigan Rules of Professional
Conduct (MRPC).
In 2004, a challenge of alternative
fee payment in the Bankruptcy Court
for Eastern District of Michigan in the
matter of In re Michel held that a prepetition fee agreement that draws no
distinction between pre-petition and
post-petition services and fees creates
a debt that is entirely pre-petition debt
which is subject to the automat