If you are thinking about hiring a lawyer to file a bankruptcy petition and represent you in the case, you should know about how attorneys’ fees are typically handled in bankruptcy. Contrary to popular myth, bankruptcy fees are not set by the court. And although most bankruptcy lawyers charge a flat fee for simple bankruptcies, others may charge an hourly fee. Finally, when payment is due depends, in large part, on whether you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Read on to learn about attorneys’ fees in Chapter 7 bankruptcy.
Flat Fees Versus Hourly Fees
Many attorneys, especially bankruptcy attorneys, will charge a "flat rate" to represent you in a bankruptcy case. In other words, you pay a fixed amount for the attorney to represent you, regardless of the amount of time the attorney actually spends on your case.
Other attorneys will charge you an hourly rate. This is not as common in consumer bankruptcy cases, however. The more likely scenario is for the attorney to charge a flat fee for the bulk of the case, and then charge you hourly for any extra work required for services like defending against an objection to discharge.
When You Must Pay Your Attorney
When you pay your bankruptcy attorney depends on whether you file a Chapter 7 (immediate elimination of most unsecured debt) or a Chapter 13 bankruptcy (payment of your debts, in full or in part, over three to five years).
Paying Your Attorney in Chapter 7 Bankruptcy
Attorneys’ fees in a Chapter 7 case must be paid before the case is filed. This is because you get rid of most unsecured debt in a Chapter 7 case, which means any debt for attorneys’ fees will also be eliminated. Your attorney will require you to submit full payment before filing in order to get paid.
Paying Your Attorney in Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy case, you are allowed to pay some or all of your attorney’s fees through the Chapter 13 plan. You can negotiate with your lawyer as to how the fee will be paid. Some lawyers allow you to pay their full fee through your repayment plan, without paying anything up front. Other lawyers require an initial payment—for example, $1,000—and let you pay the rest through your plan.
Are Attorneys’ Fees Fixed by the Court?
Attorneys’ fees in bankruptcy cases are somewhat unusual in that they must be disclosed to and approved by the court. However, this does not mean that the bankruptcy court fixes the amount that attorneys may charge in bankruptcy cases. Attorneys are free to charge what is reasonable given their experience and the complexity of your case, and subject to review by the court. Some courts may have a “presumptive” maximum fee for certain types of bankruptcy cases, but these ceilings may be overcome if the attorney demonstrates a good reason for charging more.
To learn more about what to expect when working with a bankruptcy attorney, see Working with a Bankruptcy Lawyer.