SUMMARY - UPDATED TO 5/7/04
Two weeks ago
CBL invited readers to participate in a "fast
and dirty" survey on typical fee arrangements in
consumer Chapter 7 bankruptcy cases. Although
the results were not voluminous, we think they
are reasonably close to being a cross section of
the consumer bankruptcy bar. For one thing, the
answers came from 35 different states. So, we
know we're not seeing one area being
over-represented in the survey. The original
sample of 67 responses at the end of the first
week has grown to 91 responses. Although this
sample is still relatively small, we noted that
the additional 24 responses didn't appreciably
change the breakdown, suggesting that the sample
is a fair representation of the consumer
bankruptcy bar.
The survey
concluded as of May 7, 2004.
Some
of the results were fairly predictable - for
example, 100% collect a pre-petition retainer
fee. Some others were a surprise - 51% say their
jurisdictions allow ""limited-engagement"
retainer agreements.
The total number of responses was 91.
The number of states represented was
35.
A quick glance at some of the
results:
100% of consumer bankruptcy lawyers collect a
pre-petition retainer fee.
For a modest majority (63%) Chapter 7 cases
represent more than 50% of their
practice.
80% use a written fee agreement.
A microscopic 4% include an attorney's lien on
the retainer fee, in the fee agreement.
A majority - 71% - collect for both pre-petition
and post-petition services in the pre-petition
retainer fee.
48% require a new written post-petition fee
agreement for adversary matters.
Here
is a table showing the complete
results:
COMPLETE TABLE OF RESULTS
1. How much of your
practice is devoted to consumer
Chapter 7 cases?
|
|
|
More than half
|
63%
|
|
About half
|
14%
|
|
Between 25% and
50%
|
17%
|
|
Less than 25%
|
8%
|
|
|
|
2. Do you typically
take a prepetition retainer
fee?
|
|
|
Yes
|
100%
|
|
|
|
3. Do you have a
written fee agreement?
|
|
|
Yes
|
80%
|
|
No
|
17%
|
|
Sometimes
|
3%
|
|
|
|
4. Does your written
fee agreement include a provision
for an attorney's lien on funds
on deposit, to secure
payment?
|
|
|
Yes
|
4%
|
|
No
|
84%
|
|
N/A or no answer
|
12%
|
|
|
|
5. What level of
services does your prepetition
fee agreement cover?
|
|
|
Prepetition services
up to filing only
|
18%
|
|
Both prepetition and
foreseeable postpetition
problems
|
71%
|
|
A portion of the
prepetition services only, with
collection of remainder
postpetition
|
12%
|
|
|
|
6. For prepetition
retainer that includes
postpetition services, which
postpetition services are
covered?
|
|
|
Only routine
administrative tasks such as 341
hearing, etc.
|
77%
|
|
Both administrative,
and foreseeable contested and
adversary matters
|
11%
|
|
N/A or no answer
|
12%
|
7. Do you require a
separate fee agreement to cover
postpetition administrative
tasks?
|
|
|
Yes
|
6%
|
|
No
|
92%
|
|
|
|
8. Do you require a
separate fee agreement to cover
postpetition contested
matters?
|
|
|
Yes
|
35%
|
|
No
|
66%
|
|
|
|
9. Do you require a
separate fee agreement to cover
postpetition adversary
matters?
|
|
|
Yes
|
48%
|
|
No
|
52%
|
|
|
|
10. Does Your local
jurisdiction permit limited
engagement retainer
agreements?
|
|
|
Yes
|
51%
|
|
No
|
33%
|
|
N/A or no
response
|
16%
|
OUR REMARKS ON THESE RESULTS
In our
opinion, certain of the results have important
ramifications that should be noted. We comment
on these results, as follows:
VOLUME
OF CHAPTER 7 WORK
Question
#1: Most of the respondents (77%) devote half or
more of their bankruptcy practice to chapter 7
work.
LAWYERS
COLLECT RETAINER FEES
Question
#2: First, it can be said with confidence that
the usual practice in consumer Chapter 7 cases
is for the attorney to obtain an "up front"
retainer fee; 100% of the respondents said they
collected a prepetition fee.
Question
#3: Approximately 20% of the attorneys either do
not use a written fee agreement, or only use one
"sometimes." In our view, this is a bit
alarming. It should be deemed good practice to
have a written fee agreement.
LIEN ON
FUNDS IS RARELY INCLUDED IN
AGREEMENT
Question
#4: Only 4% of the attorneys include in their
fee agreements a provision for an attorney's
lien on the retainer funds deposited. We were
surprised to see such low number using this
device to protect their right to payment out of
the funds deposited with the firm. At least
some, and perhaps most of the states recognize
the validity of an attorney's lien on the funds
in his or her possession to secure payment;
where this security method is allowed under
state law, they are generally recognized in
bankruptcy law. See for example In re Goco
Realty Fund, 151 B.R. 241 (Bkrtcy.N.D.Cal.
1993); In re Printcrafters, Inc. 233 B.R.
113 (D.Colo. 1999); In re Hodes, __ B.R.
__ (Bkrtcy.Kan. 2003).
WHAT
DOES THE FEE COVER?
Question
#5: A substantial majority of the prepetition
retainer agreements (71%) are intended to cover
both prepetition services up to filing, and
foreseeable postpetition services as well. A
smaller number (18%) of the prepetition
retainers are intended to cover prepetition
services only, while 12% cover only a portion of
the prepetition services, with the balance to be
collected postpetition.
FUNDS
HELD OVER ARE PROPERTY OF THE
ESTATE
The
lawyers who collect, prepetition, for
postpetition services are at risk, because the
portion of the funds in the lawyer's possession
that have not been consumed by prepetition
services (i.e., the portion still credited to
the client to cover postpetition services) has
been held in a number of cases to be property of
the estate; and, under the Supreme Court ruling
in Lamie v. United States, 124 S.Ct. 1023
(2004), the debtor's attorney in Chapter 7 cases
cannot be paid out of property of the estate
unless previously appointed by the court to
represent the estate. The basis of this ruling
was the literal meaning of the text of 11 U.S.C.
§ 330, which permits professionals in
certain categories to be paid out of the estate,
but omits any mention of the debtor's attorney
being among them. This suggests strongly that
any funds the attorney is holding after date of
filing cannot be used to pay for the attorney's
postpetition services, such as the 341 hearing
or contested or adversary issues.
Prior to
Lamie, most of the reported cases had
already established the notion that the
held-over portion of the retainer fee is
property of the estate, but had held that under
11 U.S.C. § 330 the Code permitted debtors'
attorneys to be paid out of the estate,
notwithstanding that the text of the code did
not include debtors' attorneys. Others had held
that even though the held-over funds may be
property of the estate, a limited portion of
such funds could be paid to the debtor's
attorney to cover the routine required
administrative tasks, such as attendance at the
meeting of creditors, and perhaps a few other
matters such as reviewing reaffirmation
agreements.
However,
under a strict interpretation of the
Lamie ruling, we expect to see more
trustees demanding turnover of even those funds
held to pay for the routine administrative
postpetition tasks.
Hence, the
question arises, if the debtor's attorney cannot
secure payment from the start to cover
postpetition administrative tasks such as
attending the meeting of creditors, is it fair
to say that such attorney is not required to
attend the meeting or perform other routine
postpetition tasks? This is problematic in view
of the cases that hold that once attorney of
record, the attorney's duties include attendance
at 341 meetings. In such jurisdictions, if the
debtor refuses or is incapable of paying a
postpetition fee for postpetition work, is the
attorney still on the hook to provide those
services?
LIMITED
ENGAGEMENT AGREEMENTS
One
solution that may be available is the use of the
"limited engagement" fee agreement. This is an
agreement that spells out exactly which tasks
and services the attorney will provide, and a
retainer fee sufficient to cover only those
services. Thus, the parties could agree that the
attorney will cover only prepetition services up
to filing the petition, and any postpetition
services, such as attendance at the 341 hearing
must be the subject of a new fee agreement and a
postpetition retainer fee. To our surprise, 51%
of the responding attorneys indicated that such
retainer agreements are allowed in their
jurisdictions. We are surprised only because we
had not heard much about these kinds of
agreements in the past, and assumed that most
jurisdiction would not allow them. (Question
#10).
PARTIAL
PAYMENT PREPETITION‚ BALANCE DUE AFTER
FILING
Returning
to question #5: Some of the lawyers avoid the
problem described above by taking only
sufficient prepetition fees to cover services up
to filing (18%).
Another
12% take a prepetition fee sufficient to cover
only a portion of the prepetition services, up
to date of filing, with the balance owed
collected postpetition. While this makes sense
in terms of providing access to bankruptcy for
really broke clients, it raises another problem;
the majority rule in published opinions is that
any portion of the fee for prepetition services,
due to be paid after filing, is a discharged
debt, and the attorney violates the automatic
stay and permanent discharge by leaning on the
client to pay such fees after date of filing.
See the Hessinger line of cases; In re
Hessinger & Assocs., 165 B.R. 657
(Bkrtcy.N.D.Cal. 1994).
To
summarize: fully 83% of the respondents either
collect, prepetition, fees to cover foreseeable
postpetition services, or they collect only a
portion of the fee intended to pay for services
up to date of filing, expecting the balance to
be paid postpetition. This means that 83% of
these attorneys are at risk of either paying
themselves out of property of the estate,
forbidden by Lamie, or collecting a part
of their prepetition fee after date of filing,
which violates the automatic stay.
The only
respondents who appear to be on safe ground are
the 18% who collect, prepetition, all of the fee
necessary to pay for prepetition services, and
not a dime more; by doing so, they violate
neither rule. However, even these lawyers face a
conundrum; if they take a case but collect only
sufficient money to pay for services up to date
of filing, and upon filing become the attorney
of record on the case, are they then obligated
to provide routine postpetition administrative
services such as attendance at the meeting of
creditors, reviewing reaffirmation agreements,
filing such amended schedules as may be
necessary, and postpetition counseling for the
debtors? If they are expected to represent the
debtor postpetition, but the debtor is either
unable or unwilling to pay for the services out
of postpetition income, then the attorney is
being forced to provide free legal services. In
most consumer debtor firms, the margin of profit
on any case is very slim. Can attorneys afford
to take the risk of being stuck on a case
without assurance of adequate compensation to
pay for the time?
Until that
question is resolved, our conclusion is that
debtors' attorneys may be in trouble in
connection with their fee collection practices,
and should give serious thought to how their
fees may be protected without violating one
section of the Bankruptcy Code or
another.
REMARKS BY SOME OF THE ATTORNEYS
Florida attorney
Please do a survey on the
fees allowed for Chapter 13 cases. I am in the
SD of Fla. and the local rules committee just
refused, again, to allow a higher safe harbor
fee. The committee went further, however, and
required even more work than before while
refusing to allow an increase. The committee
says that we are one of the highest in the
nation at $2500 for no-look fee for C13. But we
are required to object to all claims and provide
many post-confirmation services that
practitioners in other jurisdictions don't.
Minnesota attorney
I am really amazed at the
naivete displayed by the responses. Lamie and
the other cases have made it clear that any
pre-petition agreement to pay attorneys fees
creates a debt that is discharged. The balance
of any upfront retainer that is not fully earned
by filing becomes prpoerty ofg the estate from
which Chapter 7 attorneys cannot be paid. A lien
on the retainer may protect the retainer
balance. I appears that, so far, the U.S.
Trustee in this district is not challenging this
practice. We'd all better get creative because
this Congress is not going to "fix" any problem
that will make it easier for debtors to file
bankruptcy.
California
attorney
NACBA* will be doing its
members a disservice if a legislative "fix" is
not immediately run through Congress to correct
this outrageous Supreme Court case.** This is a
case where "letter of the law" standard was used
and a "public policy" standard SHOULD have been
used.
You're right about the fee
agreements. Where do I find more information
about attorneys' liens in California bankruptcy
cases?
* National
Association of Consumer Bankruptcy Attorneys
** Lamie
v. United States, 124 S.Ct. 1023
(2004)
Montana attorney
If the case is anything other
than a "routine consumer 7" involving W-2 wage
earners, it is an hourly engagement.
California
attorney
I had not thought about the
importance of a grant by the client of a lien
against the retainer to secure fees and will add
such a provision forthwith. Since I typically do
not attend 341a meetings in chapter 7 cases (and
my clients in the retainer letter so agree) I
really do not perform many services
post-petition. I provide one reaffirmation
without charge but I tell my clients prepetition
that I rarely see a case where a reaffirmation
makes sense, so I see few of them.
Louisiana attorney
Case law states a (chapter 7)
debtor attorney cannot collect post-petition
fees. I collect a small amount up front in a 13
with the rest in the plan but ALL up front in a
7.
[ed. note: We do
not believe case law prohibits postpetition
collection of fees per se. The
prohibitions are, 1) the attorney cannot collect
postpetition fees for prepetition
services, because the amount due is a
prepetition debt that is discharged in the
bankruptcy; 2) although the attorney may as a
general rule collect fees postpetition
for postpetition services, the attorney
may not collect such funds if they are property
of the estate. Funds could be property of the
estate if they are 1) from money in possession
of the debtor as of date of filing the
bankruptcy, or 2) funds held by the debtor's
attorney for fees, or 3) if the funds were the
issue or produce of property that was itself
property of the estate; but if the source of the
postpetition funds was the debtor's postpetition
income generated from his personal services
postpetition, they would not be property of the
estate.]
Indiana attorney
I only handle the fairly
straightforward Chapter 7 bankruptcies. I do
them quite inexpensively $600 plus the $209
filing fee and I insist that the client(s)
complete a questionnaire and make the calls to
get all the creditor information. The whole $809
must be paid prior to filing. I include any
reaffirmations and one Stay of Judgment in the
$809 fee. When they sign their schedules I have
them sign a release indicating that they have
provided me with all the required info and that
if any additional creditors "pop up" there will
be additional fees. Generally, all goes well and
I have happy and satisfied clients who refer
their friends and coworkers to me!
California attorney
-
My fee
range is $1,000 to $2,500 depending on the
complexity of the case. It's always paid in full
in advance. It's made clear in the papers filed
that adversary actions or trustee challenges to
exemptions or discharge aren't included in the
fee, and such did arise, the debtor would pay
extra for that service. I've never had either
debtor or trustee challenge my fees, except for
one case in Riverside where the Ch7 trustee
informed me that the "agreed-on" fee was $1,200,
which I personally found outrageous as I had to
make THREE appearances in that case to satisfy
him. The complexity of that case more than
justified the $1,800 fee I charged.
Tennessee
attorney
We have a potential
problem much like that which has arisen in other
circuits. This is a garnishment and notice
foreclosure state. For as long as I have
practiced law, we have taken chapter 7 cases for
a portion of the fee down, the rest over the 4
month life of the case. The contract provides
for a continuing stream of services to be
rendered both pre- and post-petition, and allows
for additional fees only in the event of
adversaries or contested hearings. I am
concerned that should our fees be deemed
discharged, that many debtors will be denied
access to the courts and will suffer
garnishments and foreclosures and repossessions
because we attorneys will be required to collect
all our fees pre-petition.
California
attorney
Retainer letter states
only pre-bankruptcy planning, preparation of
petition, statements and schedules and
representation at first meeting of creditors for
flat fee. Any adversary or motion practice
reguires a separate fee agreement.
Illinois
attorney
[I'm] still
scrambling on how to structure post-petition fee
agreements in light of recent 7th C case which
came down 12/03.
Recent Central Dist of IL
case (Judge Perkins) follows 7th cir case
indicating that any pre-petition agreement, NOT
REAFFIRMED, is discharged, under plain reading
of BK code.
Perkins also ruled that
2016 Disclosure must detail what's done before
and after filing and comport with fee
agreement.
Catch 22 - if 2016
disclosure shows any further moneys to come in
after filing date....then doesn't that
constitute a "pre-petition fee agreement"
despite the charade of entering into a new
post-petition agreement.
I'm most concerned court
will ultimately rule that ANY post-petition
agreement is an end-run around a
reaffirmation.
But how can we ethically
enter into a reaff with own client? Who's gonna
sign the atty declaration? In our district any
reaff not approved by d's atty must go before
the judge.....will he approve it? I don't wanna
be the first one to blaze that murky
trail....(even tho I am the rock n roll attorney
maverick).
Bottom line - more
attorneys, for fear of reprimand or class action
disgorgement, will just capitulate and demand
all fees up front.....which really eats into our
profits, interferes with our freedom to
contract, goes against the basic grain of "the
fresh start" provision and will delay the filing
of thousands of bk's, which will line the
pockets of more creditors....."A Bankrutpcy
Delayed Is Money Paid" ( I just made that
up).
Query - even if
[you] get all of your retainer up front
for a "routine" case and the pre-petition agrmt
carves out adversaries/contested matters from
being included in the fee, isn't that really
part of the pre-petition fee that's to be
discharged[?]. What insanity. It's a
vast right wing conspiracy I tell
you!!!
North Carolina
attorney
I want to clarify that I
do have a written fee agreement, but I don't
have the clients sign it. It's in the form of an
engagement letter, which I give the client at
the first consultation and then send them a
second time when they pay the retainer. For some
reason it seems to set up an adversarial
relationship to have the client sign an
agreement, and the letter is just as good under
my local rules. Anyway, it doesn't matter what I
put in the agreement. When I sign my name to the
petition I'm in the case forever, regardless of
how many adversary proceedings, etc. are filed,
until the judge allows me to withdraw (which
I've asked for exactly three times in 25
years).
Maryland
attorney
A separate pre-petition
retainer is NOT permitted to be held in escrow
for potential adversary matters, See, In re
Printing Dimensions, which, if obtained, is
considered property of the bankruptcy estate. A
retainer may be paid after the filing of the Ch.
7 case for additional services contemplated in
the retainer agreement, which would then be
disclosed on a supplemental 2016(b) -- even
though it would be from post-petition,
non-estate funds.
Maryland
attorney
In Maryland, the Trustee
will usually object to any fee over $1500 and
require you to file a petition to justify. The
Court is usually quick to approve most fees in
an operating business 13 and generally in the
closed down business 13. Not so quick to approve
a larger fee in the closed business Chapter
7
New York
attorney
There must be a remedy to
protect fees that a client cannot pay
pre-petition but agrees to pay from future
income. The only remedy is not to file until
paid in full to the detriment of the dentors.
NOT AN ACCEPTABLE REMEDY.
California
attorney
Every client has a written
fee agreement clearly stating what is and is not
covered. The flat fee and filing fee are paid
100% in advance and then I pay the filing fee
from the trust account to the clerk's office.
Clients are clearly told in writing that
adversary proceedings are NOT covered by the
flat fee, but that basic reaffirmations and
calls with creditors are covered. Clients
initial several additional paragraphs that they
will keep secured debt current, that they must
bring picture id and SS identification to the
341, etc. I also go over this with them at the
signing interview. Any adversary or hearing
matters that are post 341 are entered into
separately and paid from post petition earnings
or exempt property.
California
attorney
the US Trustee is looking
at the wrong side of the problem.
The "tall building"
creditors' firms can charge double per hour and
literally grind down debtors, while we are
forced to work the worse of the worst for our
fees: contingent-hourly.
Other than the joy of
helping others, there is no up side to doing
debtor work.
I just try to keep my head
down and out of the way as much as possible. I
sure do like the occassional creditor case that
I get once in a great while: easy hourly fees
that surpass (about double I calculate) what I
get for my chapter 7 "flat fee cases", and no
one looking over my shoulder to "review fees"
after the fact.
Arizona
attorney
Yes, I suppose that it is
possible to be too broke to be bankrupt, but to
disallow fee payments post petition makes it so
that either the lawyer gets cheated or the
debtor cannot get proper representation.
Time-wise, the 341 and ancillary matters take up
more time than the original filing usually, so
most of the "work" is post petition. Recent
rulings seem to decide that no work is done post
petition and that all work is pre petition. Dumb
at best!
Texas
attorney
My jurisdiction does not
require me to represent clients in adversary
proceedings filed against them. When such a
proceeding is filed, I discuss fee arrangements
with the client. My written fee agreement
specifically excludes adversary representation
from the original fee.
Indiana
attorney
I am in the 7th Circuit,
therefore I must get my basic fee before the
filing. For post filing additional work, I can
bill additional fees as per my contract and the
recent "Bethea" case.
Texas
attorney
Our down payment is
generally $509.00 which includes $209 filing fee
(ch. 7) and $300 down payment. The balance is
paid by the client in 2 or 3 monthly
installments as agreed on between client and
attorney. A contract is signed by the client
agreeing to the payment arrangement. The
contract also covers additional items such as
amendments to schedules (adding creditors which
requires an additional fee) as well as setting
an hourly rate on contested matters such as
adversaries, etc.
Pennsylvania
attorney
It includes the fee for a
normal case with no litigation or, at most, a
few 522f proceedings. It does not include
adversary proceedings.
Kansas
attorney
I would be happy to
collect my entire fee prior to filing, but I
think that practice would result in many people
being forced to file pro se, which isn't good
for the debtors or the bankruptcy
system.
Tennessee
attorney
The debtors in our
jurisdiction are poor, the competitive situation
is such that if you won't work with the client
re fees, they'll go somewhere else. I get half
the fee plus costs up front and feel fortunate
when I get anything past that. (Although about
50% do pay the balance, it usually takes longer
than I want or ask.)
California
attorney
I will not charge extra if
I have to amend and appear at a continued 341
hearing or to contest a motion to dismiss or
convert to a chapter
13.
