by: Kathleen Michon, J.D.
If you are thinking about hiring a lawyer to file a bankruptcy petition and represent you in the case, you should know about how attorneys’ fees are typically handled in bankruptcy.
Contrary to popular myth, bankruptcy fees are not set by the court. And although most bankruptcy lawyers charge a flat fee for simple bankruptcies, others may charge an hourly fee.
Finally, when payment is due depends, in large part, on whether you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Read on to learn about attorneys’ fees in both types of bankruptcy.
If you want to file for Chapter 7 bankruptcy, most attorneys will base their fees on how complicated your case is and what other attorneys in the area would charge for a similar bankruptcy. If you have a lot of assets or your income is higher than the state median for a similar household, you will typically have to pay more in attorney fees than an unemployed person with no assets.
In general, attorney fees for a Chapter 7 bankruptcy range from $500 to $3,500 depending on the complexity of the case. Larger firms with more advertising and overhead costs may charge more than a solo practitioner. Also, a newer attorney will typically charge less than a more experienced lawyer. But if your case is a simple Chapter 7, you may not need an attorney with years of experience. When shopping around for a bankruptcy lawyer, call at least a few attorneys in your area to compare their fees and ask if bankruptcy is an area they specialize in and the number of cases they file each month.
Most courts have guideline fees that attorneys can charge for a Chapter 13 bankruptcy. Unless special circumstances justify it, attorneys are not allowed to charge more than the court’s guideline fee.
Chapter 13 guideline fees are different for each judicial district. However, they are typically between $2,500 and $6,000 depending on whether you are an employee or have your own business. The good thing about Chapter 13 bankruptcy is that you don’t have to pay all attorney fees upfront.
In most cases, attorneys will ask for a portion of their fees prior to filing your case and the remainder will get paid through your repayment plan. How much a bankruptcy lawyer will require upfront depends on each individual attorney or firm. But on average you can expect to pay about half of the total fee before your case is filed.
Many attorneys, especially bankruptcy attorneys, will charge a "flat rate" to represent you in a bankruptcy case. In other words, you pay a fixed amount for the attorney to represent you, regardless of the amount of time the attorney actually spends on your case.
Other attorneys will charge you an hourly rate. This is not as common in consumer bankruptcy cases, however. The more likely scenario is for the attorney to charge a flat fee for the bulk of the case, and then charge you hourly for any extra work required for services like defending against an objection to discharge.
When you pay your bankruptcy attorney depends on whether you file a Chapter 7 (immediate elimination of most unsecured debt) or a Chapter 13 bankruptcy (payment of your debts, in full or in part, over three to five years).
Attorneys’ fees in a Chapter 7 case must be paid before the case is filed. This is because you get rid of most unsecured debt in a Chapter 7 case, which means any debt for attorneys’ fees will also be eliminated. Your attorney will require you to submit full payment before filing in order to get paid.
In a Chapter 13 bankruptcy case, you are allowed to pay some or all of your attorney’s fees through the Chapter 13 plan. You can negotiate with your lawyer as to how the fee will be paid. Some lawyers allow you to pay their full fee through your repayment plan, without paying anything up front. Other lawyers require an initial payment—for example, $1,000—and let you pay the rest through your plan.
Attorneys’ fees in bankruptcy cases are somewhat unusual in that they must be disclosed to and approved by the court. However, this does not mean that the bankruptcy court fixes the amount that attorneys may charge in bankruptcy cases. Attorneys are free to charge what is reasonable given their experience and the complexity of your case, and subject to review by the court. Some courts may have a “presumptive” maximum fee for certain types of bankruptcy cases, but these ceilings may be overcome if the attorney demonstrates a good reason for charging more.
If you're looking to hire a bankruptcy lawyer, make sure you understand what to look for in an attorney.