About Chapter 7 Bankruptcy Fees Payment Plans
Until recently, Bankruptcy Courts and U.S. Trustees have not allowed chapter 7 bankruptcy attorneys to collect any fees and costs after the filing of debtors’ chapter 7 cases. Any unpaid balance was declared discharged in the bankruptcy. Only up-front payment was allowed.
Often, however, debtors would find up-front payment of attorney fees and costs to be impractical or impossible. In such cases, the debtor’s filing would be delayed until he was able to accumulate up-front fees and costs to hire an attorney to file the case. Such delays often burdened debtors with continued creditor harassment, lawsuits, wage garnishments, bank levies, repossessions, foreclosures, and more.
Bifurcation: Perhaps in response to the burdens such filing delays have caused debtors, the Bankruptcy Courts and U.S. Trustees have become more willing to allow attorneys to immediately file debtors’ cases without up-front payment of attorney fees and costs, through a process called Bifurcation. Bifurcation is a procedure that separates the chapter 7 filing into a two-part filing. Attorney fees and costs are likewise divided into amounts incurred prior to the filing of ‘part one,’ and fees and costs incurred in connection with the filing of ‘part two.’ Unpaid ‘part one’ fees, if any, are discharged. ‘Part two’ attorney fees and costs, however, are NOT discharged, and may be collected by the attorney after the case has been filed.
Payment Plans and Cost
Full Payment Up-Front: Full payment up-front remains the simplest and least expensive way debtors can pay for their chapter 7 case, assuming funds are available. Any delay in filing the case is avoided. Additional costs associated with bifurcation or filing delays are avoided as well.
Bifurcation (Post-Filing) Payments: The debtor makes installment payments on any nondischargeable attorney fees and costs, for a period up to one year.
Any attorney fees paid post-filing through bifurcation becomes 25-40% more expensive than paying up-front, because of the two-part filing and deferment or factoring of fees, as well as bookkeeping and collection considerations. Unless immediate filing is necessary (to prevent continued creditor harassment, lawsuits, wage garnishments, bank levies, repossessions and foreclosures, etc.), the extra cost of bifurcation is usually unwarranted.
Pre-filing Installment Payments: The debtor makes installment payments on all attorney fees and costs, for a period of up to one year.
If immediate filing isn’t critical, debtors who aren’t able to pay up-front may take advantage of paying attorney fees and costs in installments prior to filing. The attorney is retained immediately with a fee agreement or small retainer, and is available for consultation and interface with creditors. Debtors may legally avoid further payments to dischargeable creditors. Should an immediate filing become necessary during the installment period, a bifurcated case can be filed.
Unless bifurcated, the bankruptcy will be filed once all attorney fees and costs have been paid. Bifurcation costs are avoided, however the deferred installment balance will be increased 10%, to cover interim attorney representation and bookkeeping.