Chapter 7 Bankruptcy: How do lawyers get paid?

Here’s the scenario: I’ve met with an attorney and discussed all the options. Chapter 7 bankruptcy seems to be the best option for me. Wipe-out tens of thousands of dollars in credit card debt, medical bills, back taxes, etc. Keep the car and house. This is a HUGE RELIEF. But wait, the fee for the bankruptcy is more than a thousand dollars – I don’t have any money!

Your first instinct may be to use a credit card. Yes, I’ve had dozens of clients ask me if they can charge their bankruptcy fees to a credit card with an available balance, or take a cash advance. Is this a good idea, or even legal? The answer is “no.” Section 523(a)(2) of the Bankruptcy Code provides that recent credit card charges or cash advances may not be dischargeable in a bankruptcy. In general, charges made on a credit card within 90 days of filing bankruptcy will not be eliminated by the bankruptcy. The policy behind the Section makes sense – it’s not fair to go crazy with the credit cards right before filing bankruptcy. Essentially, incurring charges without the intent to repay them is fraud.

The next instinct would be to ask your lawyer if he can file the case for a small down payment, then make payments on the balance. For a variety of reasons, this option is problematic in the context of a chapter 7. First of all, this arrangement creates a debtor-creditor relationship between you and your attorney. You owe your attorney the balance of the fee, so your attorney is a creditor – just like the credit card lenders and medical bills. In my opinion, this creates a conflict of interest. Your attorney needs to represent you against your creditors, and that’s difficult to do when he’s one of them.

Last week, one of my colleagues, an attorney from Rome, GA, filed a CLASS ACTION LAWSUIT against a high-volume bankruptcy firm – Clark & Washington (“C & W”). The lawsuit is filed on behalf of all clients of C & W that paid for their bankruptcy after it was filed through a series of post-dated checks. The lawsuit alleges that C & W’s collection of fees post-bankruptcy constitutes a violation of the automatic stay. The issues are complicated, because there’s a provision in the Bankruptcy Code that specifically ALLOWS a creditor to present a post-dated check for payment after a bankruptcy. Clearly, the ethical implications and threat of lawsuits should give any attorney pause before collecting post-filing fees.

Perrotta, Cahn & Prieto has a better solution. We allow our clients to make payment arrangements on their chapter 7 case. The case isn’t filed until the fees are paid, but we provide pre-bankruptcy legal representation to our clients as soon as we are paid the first dollar. In that regard, we notify collectors, pursuant to the Fair Debt Collections Practices Act (FDCPA) that all collection activity is to be directed to our firm, and not the client. If a lawsuit is filed, we help defend our clients. Our legal defense and resources give our clients the time and breathing room they need until the case is filed.

For a free consultation, contact our office today. (770) 382-8900

You can e-mail me directly with any questions. Brian R. Cahn

We have offices located throughout Northwest Georgia, including Cartersville (serving Bartow County), Dalton (serving Whitfield, Murray and surrounding counties), Dallas (serving Cobb, Paulding, Polk and surrounding counties) and Calhoun (serving Gordon, Floyd and surrounding counties).

Brian R. Cahn
Cartersville | Dallas | Dalton | Calhoun | Atlanta


Posted on September 27, 2011, in Bankruptcy and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink. 3 Comments.

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  2. Remember that you would wind up paying a lawyer formore than just the time they spend
    on your own case. You might need to pay them for telephone costs,traveling
    even prices, and costs to make copies, if appropriate too your own case.Consider this intyo accouht
    when making a financial strategy.

    You should make certain you have a solid case beforeattacking someone.
    Keep in mind that some attorneys justhave their own inbterest in mind and will advise you to visit court regardless of how solid your case is.
    Prersent your case to distinctprofessilnals and do some research on your
    owwn beefore yoou go to court.

  1. Pingback: Class Action Lawsuit Filed against Bankruptcy Firm – The Sandberg Law Firm and Anthony Sandberg « North Georgia Bankruptcy

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