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The Payment And Disclosure Of Attorneys Fees In a Long Island Bankruptcy Case
If you are having a difficult time paying your monthly bills and are considering the filing of a bankruptcy petition, it is important to gain a general understanding of how attorneys fee are charged, paid and disclosed in a Long Island bankruptcy case. The answers to these questions depend, in part on whether you intend to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Attorneys’ Fees in a Nassau County Bankruptcy
Chapter 7 Bankruptcy
An attorney representing an individual in a Chapter 7 bankruptcy does not need court approval to take on the case or to accept the payment of a fee[1] as the attorney in a Chapter 7 case represents only the debtor and not the estate. If you are filing a Chapter 7 bankruptcy, an attorney will often base their fee on how complicated the bankruptcy case is compared to other bankruptcy filings. An experienced Long Island bankruptcy attorney can review the specifics of your case and discuss an appropriate fee and way that it is calculated.
It is not uncommon, however, for an individual with no assets to pay less in attorneys’ fees than someone with higher income and many assets. One important consideration is that an attorney charging a low amount of attorneys’ fees may not have sufficient experience and skill necessary to protect your rights and to offer you the most appropriate bankruptcy and non-bankruptcy options.
Further, the fee to be paid to the debtor’s attorney in a Chapter 7 case must be paid in full prior to the filing of the bankruptcy or the unpaid balance of the fee may be subject to discharge with the debtor’s counsel treated as a general unsecured creditor. See Bethea v. Robert J. Adams & Assocs.[2], 352 F.3d 1125, 1127 (7th Cir. 2003), cert. denied, 541 U.S. 1043, 124 S.Ct. 2176 (2004) (prepetition debts to debtor’s counsel for legal fees are subject to discharge).
Chapter 13 Bankruptcy
A Chapter 13 filing usually requires several court appearances and often involves at least twice as much work as a typical Chapter 7 case. Although some districts have “fee caps” in consumer cases which essentially permit bankruptcy counsel to charge any fee up to the cap without having to obtain court approval the Eastern District of New York is not one of them.
In 2012, Judge Jerome Feller, a bankruptcy judge in the Eastern District of New York issued a twelve-page decision concluding that reasonable compensation for a routine Chapter 13 filing in the jurisdiction is $5,000.00 dollars. In re: Nicholas Moukazis[3], (01-12-4220-jf, Bankr. E.D.N.Y.).
It is also important to note that in many Chapter 13 filings, a portion of the fees are paid to the attorney prior to filing the case, with the balance paid through the repayment plan.
Disclosure of Attorneys Fees Paid in a Long Island Bankruptcy
A bankruptcy lawyer is required to inform their Court of how much money an individual has paid or will pay in connection with their bankruptcy case as well as the source of the fees in accordance with Section 329a of the Bankruptcy Code[4]. The disclosure period begins one year before the case is filed and continues to include all subsequently undisclosed payments. Bankruptcy Rule 2016b[5] requires the filing of a disclosure statement:
-Within 15 days of the order for relief
-Any any other time as the Court directs; and
-After any payment not previously disclosed.
This disclosure requirement is designed to prevent a debtor from depriving creditors of potential assets by transferring property to the attorney before filing and to prevent a financially stressed and vulnerable debtor from overpaying for legal service. In order To comply with the rule, the courts have developed Form B203, Disclosure of Compensation of Attorney for Debtor, which must be submitted with the bankruptcy petition, so that the judge will know exactly how much is being charged.
Generally, the fees should cover the routine tasks that are part of every bankruptcy, including:
-counseling, preparing and filing the bankruptcy petition,
-attending the creditors meeting,
-and for a Chapter 13 petitioner, detailed writing up the Chapter 13 repayment plan and attending the confirmation hearing with the debtor.
Further, Rule 2017(a)[6] enables any party or the Court, to seek a hearing as to whether any payments by the debtor made to an attorney in contemplation of bankruptcy were excessive.
Trends in the Law Concerning Disclosure of Fees
In June of 2013, the Department of Justice[7] announced new guidelines for the payment of attorney’s fees and expenses in large Chapter 11 bankruptcy cases, which involve primarily partnerships and corporations, to enhance disclosure and transparency in the compensation process and to help assure that attorneys’ fees and expense are based on market rates.
The Bankruptcy Code allows professionals who provide services during a Chapter 11 case to be compensated from funds of the debtor company if statutory requirements are met and the bankruptcy court approves payment. It is a statutory requirement of the United State Trustee Program[8] (UTSP) to review and, where appropriate, object to an application for fees and expenses.
The 2013 update to the guidelines took into account the significant changes that occurred in the legal industry as well as the increasing complexity of business bankruptcy reorganization cases. The guidelines were originally issued in 1996 and are being updated in phases; the first phase, announced in 2013, governs the USTP’s review of fees and expenses requested by attorneys in chapter 11 cases with $50 million or more in assets and $50 million or more in liabilities.
The guidelines also provide for the:
-Use of budgets and staffing plans;
-Disclosure of rate increases that occur during the representation;
-Use of rates that are based on the attorney’s home office location;
-Submission of billing records in an open, searchable electronic format;
-Use of independent fee committees and fee examiners; and
-Use of model forms and templates for applications for compensation and expenses.
The updated guidelines apply to attorneys’ fees and expenses in cases filed on or after Nov. 1, 2013, that meet the large case threshold. Until the USTP adopts additional superseding guidelines in the next phases of revisions, the 1996 guidelines will continue in effect for the review of fee applications filed in larger chapter 11 cases by professionals who are not attorneys, in all chapter 11 cases below the large case threshold, and in cases under other chapters of the Bankruptcy Code.
Contact an Experienced Long Island Bankruptcy Attorney
Every attorney is subject to the ethics rules of the state in which they practice law. New York bankruptcy attorneys are subject to the New York Rules of Professional Conduct. In addition to state ethics rules, attorneys in bankruptcy practice are also subject to various rules of conduct and disclosure as contained in applicable Bankruptcy Code provisions and portions of the Federal Rules of Bankruptcy Procedure governing ethical considerations.
If you are unable to pay your debts it is important to speak to a skilled greater Long Island and New York area bankruptcy attorney who can interpret and apply federal and New York laws to your situation. Call the office of Ronald P. Weiss today at (631) 296-0361 in order to discuss the specifics of your financial situation and possible bankruptcy solutions.
