Filing fees for all fee-required documents to the bankruptcy court are increasing effective November 1, 2011.    In particular, the following are the new fees to be required for commencing cases under the “main” chapters:

Chapter 7-$306

Chapter 11-$1,046

Chapter 13-$281

The above are only a $7 increase from the existing fees, but an increase nonetheless.

Other fees, such as filing an adversary complaint, Motions regarding the Automatic Stay, and others, will also be increasing by differing amounts.

COURT FILING FEES ARE SEPARATE FROM ATTORNEY’S FEES

The above fees are paid to the court clerk.  They are always IN ADDITION to any attorney’s fees for representation in a case.

Image courtesy of Eric Steuer

It’s not a new issue:  People filing bankruptcy are concerned about how much legal representation will cost them.   This is completely understandable given the financial situation they are in.  As a result, attorneys advertising  “low cost” bankruptcy filings are attracting unwary clients like mosquitoes to stagnant water.   But there is a growing disparity in attorney’s fees charged by attorneys to represent individuals in a bankruptcy case.    For representation in a Chapter 7 case, attorney’s fees in the Greater Los Angeles Area can range from around $750 to over $4,000, plus the required court filing fees.  Why the big difference?   To be quite honest, primarily it is quality,  and having your case botched by an inattentive or inexperienced bankruptcy attorney can be devastating and end up being far more expensive.

Just to be clear up front:  I am not saying that all lower-priced attorneys are incompetent and I’m not saying all high-priced attorneys are great.  I’m merely saying that while the cost of hiring an attorney is certainly a relevant and important factor, one’s chief criteria for selecting an attorney should NOT be the price because there are many far more important factors, as explained below.

What Do you Get For Your Money?

Finally, you should find out what exactly you’re getting for the fees.  Is the attorney going to hit you with a bunch of additional fees as the process goes along, claiming that it wasn’t included in the originally quoted fee?  This is a very common result of attorneys who do not get sufficient information up front and, consequently (or because they simply lack the requisite knowledge and experience), do not anticipate the potential problems that may arise in the case.  It’s also common with attorneys who simply piecemeal their services and tack on additional fees for everything that happens.

Will the attorney be doing the actual work on your case, such as preparing the paperwork, including exemptions for your assets, or do they give it off to a paralegal or other petition preparer?  How long does it take the attorney to respond to questions you have?

Ask and compare.

You Get What You Pay For

There are many factors that can affect fees.  One is the complexity of the case.  But the main reason is simply that there are differences between attorneys and what “ingredients” they offer.  The old adage “you get what you pay for” applies to bankruptcy attorneys as well.   To use a food analogy:  You’re not going to get the same quality of food at Taco Bell as you are in an upscale restaurant.   You may enjoy the low price and (for some) the taste, but in the long term there can be very serious consequences.    What really amazes me in a lot of cases is that clients in bankruptcy are often seeking to get rid of $40,000, $80,000, and some well over $100,000 of debt,  yet they are giving serious debate over how they can save $100-$200 dollars on attorneys’ fees.   If you needed surgery done, would you want the lowest priced surgeon cutting into you?  I sure wouldn’t.    I wouldn’t necessarily want the highest priced one either, but I would be extremely suspicious of a low-priced doctor.   At best you’re going to be seeing someone who does a high volume practice who couldn’t possibly have the time to worry about your details.  At worst, you could be setting yourself up for disaster.

Choosing a bankruptcy lawyer is no different.   Bankruptcy law is very complex and it was made significantly more complex by changes to the laws in 2005.    There are literally hundreds of potential pitfalls and traps in every case and it requires an experienced bankruptcy attorney to anticipate, identify, and avoid those traps on your behalf.   A failure to properly do so can result in you having to spend thousands of dollars later to fix the mistake, if it is even possible then.

This is not to say that all lower-priced bankruptcy attorneys are bad, and all higher-priced bankruptcy attorneys are good, but all attorneys are not created equal.   In general, the lower priced attorneys and firms are simply not going to give you the same quality of service. They will likely not be responsive to your questions, will not anticipate problems,  may not resolve issues before they arise, and may not properly present your case in such a way that optimizes the benefits to you.

How Can Low Cost Attorneys Afford to Charge So Little?

When the bankruptcy laws changed in 2005, there were several provisions put into the new law governing attorney “due diligence” which essentially requires the attorney to undertake extensive additional steps to verify certain information of the client and take steps to ensure the accuracy of documents filed with the court, etc.   These are not tasks which can rightfully be delegated to non-attorneys to do.    I suspect that one way these low cost attorneys can afford to charge so little is that they are simply not doing everything they are required under the law to do.  They may not get “caught” or penalized that often, so they absorb the cost when it does happen, much in the same way that airlines find it more profitable to deal with a lawsuit when one plane crashes because proper maintenance had not been done, rather than to put in the time and expense to properly maintain the aircraft in the first place.

The other way they stay afloat is by doing a high volume business (low profit, high volume).   The problem with this is that there’s simply no way you’re going to get the same level of service or responsiveness from your attorney at a firm like that as you will from one who takes a more hands-on approach to his clients.   One thing you don’t want going through a process like bankruptcy is to meet with the attorney one time, then never see them again and find you’re unable to get any questions answered after your case is filed (especially if things start going wrong).    Again, almost every day I hear stories from unfortunate clients with this exact scenario regarding attorneys they hired.

See My View on Fees

What to Look for When Hiring a Bankruptcy Attorney

I invite you to research any attorney you consider hiring.   Here’s what I suggest you consider or ask when researching which attorney to hire:

• How long have they been practicing bankruptcy law?

• Do they handle exclusively bankruptcy cases, or do they dilute their practice by handling other areas?

• Are they well thought of by their peers?  You can check neutral, independent evaluation sites to see if they have a peer review rating such as lawyers.com or avvo.com.   I invite you to click on those links to check ratings.

• Is the attorney recognized as an expert in the field?  I  regularly answer questions from distraught individuals whose attorneys have essentially abandoned them, or hopelessly botched up their case.    Some of their stories really make me sad.   Take a look for yourself at some of the questions I have answered for free on sites such as allexperts.com and avvo.com.    I  bet a lot that the people complaining about their present or past attorneys chose the least expensive attorney they could find,  perhaps thinking that all attorneys are  the same, or that bankruptcy is simple and there isn’t much to it.

• Is the attorney sought out by the media to speak on issues of bankruptcy law?

I’m  not advocating only hiring the most expensive attorney you can find.  Not at all.   But my suggestion is that you should focus on the attorney’s quality and experience rather than if they charge a bit more than the lowest priced competitors.   Find an attorney whose fees match your needs and expectations in terms of quality and service.

Photo courtesy of  mat_the_w

This is NOT true.   While it was clearly the intent of  Congress to appease the credit card lobby and make it more difficult to eliminate credit card debt, the new bankruptcy laws which went into effect in 2005 made filing bankruptcy more complicated, but certainly did not eliminate the ability to do so.

Credit card debts are just as dischargeable as they were for at least 30 years prior to the recent law change.  They are not dischargeable if incurred through fraud or other exceptions to discharge (see http://www.bklaw.com/discharge.html for more information on this), but otherwise you can still file a Chapter 7 case (or a chapter 13 or Chapter 11) and eliminate credit card debt.

Income taxes may also me discharged under certain circumstances.   The law has not change on this in over 30 years.   It is a very complicated analysis, and dischargeability can only be determined after analysis by a professional of ACTUAL internal transcripts from the taxing agency, but the basic rule is that if the taxes are older than 3 years from the date the return was last due to be filed, and the return was filed more than 2 years ago, and not assessed  in the last 270 days, then they may be dischargeable.  To see more on tax discharge in bankruptcy,  visit http://www.bklaw.com/taxes_bankruptcy.html

The bottom line is, don’t believe rumors.  Talk to a bankruptcy attorney about your options.

For more interesting bankruptcy myths, visit http://www.bklaw.com/bankruptcy_myths.html

A bankruptcy client of mine recently made a statement that I obviously already knew, but had never heard it phrased quite the way he said it. The husband and wife’s situation had been deteriorating for a long time. They had amassed a large debt, which they previously had sufficient income to pay, but one of them lost their job, and the other had to take a pay cut, and the problems started mounting. They used all their savings, sold assets, borrowed from their retirement and survived as long as possible before seeking a bankruptcy consultation. By the time they got to me, they had exhausted all their resources.

After a lengthy consultation with them about their financial situation, analyzing their assets and debts and determining that bankruptcy would likely be their best option, I gave them a fee quote for my services (which was actually for a lower amount than normal for a case of their complexity). The husband said out loud–to nobody in particular–”Guess it costs money to go broke.” He said it with a slight smile, but I felt his pain.
The truth, however, was that they were already broke. What cost money was filing bankruptcy to get rid of their debts (or in other cases, to reorganize them). But the client raised an important point. Other than the moral kudos they get for paying their creditors as long as possible by depleting all their resources and assets, they simply waited far too long before seeking advice on their situation. All States have exemption laws which enable debtors, inside and outside of bankruptcy, to protect certain assets, including–at times–cash in bank accounts, etc. It rarely makes sense to deplete your assets below the applicable exemption amounts. (see more on California exemptions. You are going to need those assets! Not just because you may need to hire an attorney, but also to assist you in living as you try to rebuild after a bankruptcy case.

One recurring theme I see over and over again is clients that wait too long to seek advice. Whether it be out of guilt, fear, hope that circumstances will change, or whatever….it is important to analyze your options before your options have disappeared.

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I often get asked this important question by concerned potential clients. It is very difficult, if not impossible, to answer how much the attorneys fees for any bankruptcy will be before having a consultation and getting all the relevant information. It’s even more difficult to do in a Chapter 13 bankruptcy case.

Why?

Let’s say that the base bankruptcy attorney’s fee is $4,000 for a regular, non-business debtor Chapter 13 case, plus the $274 filing fee and necessary credit counseling courses. In most cases, that is NOT how much you have to pay to your attorney before filing your case. Why not? Because part of the attorneys fees can be taken from your monthly plan payments that you will have to make anyway in your Chapter 13 case. How much can be taken through your plan payments? That depends on 1. What your monthly plan payment is, which is determined by the complex means test analysis; 2. Whether by making the additional payments for attorneys fees, it would render you unable to pay certain necessary debts which need to be paid 100% in your plan (such as taxes, or mortgage arrears, etc.).

For example, if the means test is showing that your monthly plan payment is $200 per month for 36 months, and you are filing the bankruptcy case in order to repay $7,200 of past due amounts on your mortgage (arrears), then you do not have any more income available to pay your attorneys fees through your plan. If you added another $3,000 of attorneys fees, it would raise your monthly payment by approximately $100 per month. (Plus, most attorneys aren’t going to wait that many months to be paid their fees).

This was just a quick example, but I think it illustrates why it is necessary to have a complete consultation with an attorney before they can give you an accurate fee quote and let you know how much you’ll have to pay up front to file a Chapter 13 case for you.

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