What do bankruptcy lawyers charge for Chapter 7 and Chapter 13, and who checks the fee?

What are you paying for when you file?

Filing involves separate costs paid to different people. When you compare quotes, find out which of them a number includes.

What must your lawyer tell the court?

Any lawyer who represents a debtor in a bankruptcy case, or in connection with one, must file a statement of the compensation paid or agreed to be paid and the source of that money. The duty reaches back to payments and agreements made in the year before the petition.1

The statement is due within 14 days after the case begins and also goes to the United States trustee. It must show whether the lawyer shares the fee with anyone outside the firm. If you pay or agree to pay more later, a supplemental statement is due within 14 days.7

The courts publish a form for it, Director's Form 2030, Disclosure of Compensation of Attorney For Debtor.8

In practice this means the fee is on the record of your case. Asking for the fee in writing is asking for something the lawyer has to report anyway.

Can the court reduce a lawyer's fee?

Yes. If the compensation exceeds the reasonable value of the services, the court may cancel the fee agreement or order the excess returned, either to the bankruptcy estate or to whoever made the payment.1

In an individual's Chapter 13 case, the court may allow reasonable compensation to the debtor's lawyer based on the benefit and necessity of the services. Lawyer compensation can be paid under a Chapter 13 plan, and the court's power to order excessive fees returned covers those payments too.9 1

The U.S. trustee, an officer of the Department of Justice who supervises the administration of bankruptcy cases, also monitors fee applications.10 11 12

How do Chapter 7 and Chapter 13 attorney fees differ?

The disclosure rule is the same in both chapters. What differs is how the fee can be paid and how closely the court looks at it.

In Chapter 13, lawyer compensation can be paid under the plan, and the court may allow reasonable compensation based on the benefit and necessity of the services.9 1

Some bankruptcy courts set a presumptively reasonable, or "no-look," fee for a routine Chapter 13 case. In one court that publishes its rule, a lawyer who asks for that amount or less does not have to file a fee application unless someone objects. If a party objects, the lawyer must file one and prove at a hearing that the fee is reasonable. Whether your court has such a fee, and what it covers, is set locally.13

In Chapter 7, ask when the fee is due and what it covers. The FTC notes that many lawyers charge a flat fee for a simple bankruptcy and may ask for a deposit, called a retainer, before starting work. Before you agree to a flat fee, find out exactly what it covers and what happens if the case needs more work than expected.14

Are you entitled to a written fee agreement?

The Bankruptcy Code puts duties on any debt relief agency, which it defines as anyone who provides bankruptcy assistance to an assisted person for payment.15

A debt relief agency must sign a written contract with you within 5 business days after it first provides bankruptcy assistance, and before the petition is filed. The contract must clearly explain the services, the fees or charges and the terms of payment, and you must get a copy.16

A debt relief agency also may not misrepresent the services it will provide or the benefits and risks of bankruptcy.17

The FTC's advice for any lawyer is the same: get the fee agreement in writing.14

What should you ask before you hire a lawyer?

The federal courts list what a bankruptcy lawyer can do for you: advise whether to file and under which chapter, whether your debts can be discharged and whether you can keep your home or car, explain the law and procedures, and help you complete and file the forms.18

A quote only means something once you know its scope. These questions pin it down.

• Which chapter is the quote for?
• Does it cover the petition and schedules, the means test forms, the 341 meeting and any amendments?
• What costs extra? Ask about an adversary proceeding, which is a separate lawsuit inside the case, about answering a motion or objection, about converting to another chapter and about reopening the case later.10
• Are the court fees and the course fees included, or on top?
• When is the fee due: before filing, in installments, or through a Chapter 13 plan?
• What happens to the fee if the case is dismissed or converted?

What if you cannot afford a lawyer?

If you are unable to afford an attorney, you may qualify for free legal services. The clerk of your local bankruptcy court or your state bar association may have information about people or organizations that offer bankruptcy services at a reduced fee or pro bono.18 19

Individuals can also file without a lawyer, though the federal courts strongly recommend getting advice from a qualified attorney first.18

A petition preparer is not a substitute for a lawyer. Preparers may only enter information into forms and may not give legal advice.20 18