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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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Issue with Legal Fees: BACKGROUND I was granted a chapter

Customer Question

Issue with Legal Fees: BACKGROUND I was granted a chapter 13 Bankruptcy on November 16, 2011 I used an attorney to help me get this Bankruptcy approved. $4000 is the amount my attorney told me to expect to pay for the legal work she would do. My attorney charged me $4000 to handle my bankruptcy case. This amount was accepted by the court when they granted me a bankruptcy and settlement. ....... On January 3, 2012 my attorney notified me that she is filing an “Application for Compensation By Attorney For Debtor” in the amount of $6,096.25 plus expenses in the amount of $695.12 plus unreimbursed expenses in the amount of $421.12. These charges are in addition to the original $4,000 that the court accepted as my legal fees. The total compensation that my attorney now wishes to seek is $4000 (original agreement) + $6.096.25 +$695.12 + $421.12 = $11,212.49. $11,212.49 is more than double the original attorney fee for this case. The total debts for which I filed bankruptcy was only app $25,000. The original attorney fee for this case was $4000. The total compensation my attorney now wishes to seek is almost 50% of the original debts for which I filed bankruptcy. This appears inappropriate to me. On February 15, 2012 a Judge will decide whether or not my attorney should receive a total of $11,212.49 for handling my case. If the judge agrees with the total compensation that my attorney is now seeking my total settlement and therefore monthly charge will be significantly increased ,. . perhaps doubled? ......................... I do not agree to the additional attorney fees. And I want to file an Objection, to the “Application for Compensation By Attorney For Debtor”. The objection must be filed by February 5th 2012. If I file an objection, my attorney will cease to represent me in my Bankruptcy Case. THESE ARE MY QUESTIONS 1) Is there any reason why I would be likely to need my attorney to continue to represent me in my bankruptcy case? 2) Is it typical for an attorney to complete a case in which the attorneys fees are part of the case settlement and then six weeks s later ask the court to award additional fees to the attorney and therefore have those fees added to the total case Settlement? 3) The amount of Bankruptcy that I now have to pay as a settlement was x % of the total debts (including attorney fees) that I owed. If the additional attorney fees are added to my total debts will the same x% be used to determine my final settlement? 4) In Bankruptcy Cases, do judges typically side in favor of attorneys who file an “Application for Compensation By Attorney For Debtor”? 5) Other than having a larger settlement to pay, are there any possible negative consequences that I might have to accept if the Court over rules my objection to the “Application for Compensation by Attorney for Debtor”. 6) Should I have an attorney represent me in filing and managing my Objection to the additional Compensation to my attorney? To put it simply: Could there be any negative consequence to me filing an Objection? Customer

I am willing to pay a bonus for useful answers to my questions
Submitted: 2 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 2 years ago.
1) Is there any reason why I would be likely to need my attorney to continue to represent me in my bankruptcy case?

That is tough to call because with 3 to 5 years left in your Chapter 13 Plan, you may or may not need additional representation. If your Plan was confirmed, then theoretically you do not need your attorney any more. But, if a creditor files a Motion for Relief from Stay or something during the case, you may need a lawyer. Or, if your lawyer has not yet reviewed the claims in your case, you may still need a lawyer to do so. Also, there are motions which need to be filed in some cases, and I do not know if they have been filed yet in yours (or if they are even needed in your case), such a Motion to Avoid Judicial Lien, Motion to Avoid Wholly Unsecured Mortgage, local stays in lawsuits, etc. Also, if something changes during the Plan life, such as a decrease or increase in your income or expenses, a car that is being paid through the Plan gets totaled, etc, then you may need a lawyer to help you file the appropriate amendments.

But, technically, if the Plan is confirmed and you do not expect any surprises, then you may not need a lawyer in the future. And, even if you do need a lawyer, you do not necessarily need the same lawyer if you burn this bridge.

2) Is it typical for an attorney to complete a case in which the attorneys fees are part of the case settlement and then six weeks s later ask the court to award additional fees to the attorney and therefore have those fees added to the total case Settlement?

No, it is not typical but it is not unheard of. Sometimes if there is a considerable amount of legal work required in a case that was not envisioned initially, then it happens from time to time. For example, if your attorney had to file motions due to lawsuits that were not known at the time the case was filed (or when fees were quoted), additional hearings defending unexpected objections, excessive amendments that needed to be filed, etc.

However, going from $4,000 to $11,000 is quite a stretch. But, that's why the court has to review these requests, to be sure the amount requested is legitimate and fair.

3) The amount of Bankruptcy that I now have to pay as a settlement was x % of the total debts (including attorney fees) that I owed. If the additional attorney fees are added to my total debts will the same x% be used to determine my final settlement?

Maybe. The way Chapter 13 works is that you have to pay in as much as you can afford for the 3 to 5 years of your Chapter 13 Plan. The courts don't really care if what you pay in pays 5% or 95% of your unsecured debt, only that the amount represents your best, good faith effort to pay as much as you can over the Plan life. Whatever debts are unpaid at the end of the Plan are discharged and canceled. The amount you pay in also has to be sufficient to cover secured items you elected to keep, such as car loans, etc.

So, sometimes when there is an additional expense that pops up that needs to be paid through the Plan, including additional attorneys fees, it may or may not affect the amount you have to pay in to the court. If you are paying in enough to cover the fees, then the result might be that your payment stays the same but unsecured creditors get a smaller percentage of their debts paid back. If however there is not enough money in the Plan to cover the additional fees, then the payment might have to go up.

For example, say you are paying $200/month for 60 months in to the Chapter 13 Plan, which totals $12,000. Let's say $4,000 of that is attorney fees, $500 is trustee fees, $2,500 is paying off your car, and the balance ($5,000) will go to the unsecured creditors (i.e. medical bills, credit cards, deficiency balances owed on repossessed cars, old utility bills, personal loans, etc). Let's also say the total amount of your unsecured debt was $20,000. So, as it stands, the unsecured creditors will receive $5,000 toward their $20,000 in claims, and the remaining $15,000 you owe them will be discharged. The unsecured creditors will thus receive 25% of their claims, with the other 75% being discharged.

Let's then say your attorney files an additional fee claim for $4,000. In this case, the Plan payment would not have to change, since the $4,000 could come out of the $5,000 the unsecured creditors were going to get. If the fee claim is approved by the court, the lawyer would get $8,000 and the unsecured creditors would now only get $1,000. So, the unsecured creditors' percentage of recovery would drop from 25% down to 5%, while your payment stayed the same (if that makes sense).

Instead, let's say the lawyer files an additional claim for $10,000. Even if all of the money set aside for unsecured creditors goes to the lawyer, the Plan would still be short $5,000, so the Plan payment would have to go up to cover the additional fee claim.

However, since you were already paying in as much as you could afford, raising the payment is not possible, so the fee claim would either be denied or something would have to give (such as a car would have to be surrendered to free up money, etc).

4) In Bankruptcy Cases, do judges typically side in favor of attorneys who file an “Application for Compensation By Attorney For Debtor”?

No. In my experience, judges listen to everything and then make their decision fairly. I have seen fee claims granted and denied.

5) Other than having a larger settlement to pay, are there any possible negative consequences that I might have to accept if the Court over rules my objection to the “Application for Compensation by Attorney for Debtor”.

Not that I can think of, other than having an irritated attorney, but you should still do what you think is fair and not worry about that. The attorney evidently wasn't worried about having an irritated client.

6) Should I have an attorney represent me in filing and managing my Objection to the additional Compensation to my attorney? To put it simply: Could there be any negative consequence to me filing an Objection?

YES - you should have a lawyer help you. I would suggest you first call your original attorney and see why the additional claim was filed, and if it will impact your Plan payment to the court. If you are satisfied and comfortable with what you are told, you can leave it at that. If you are not, you should absolutely have another attorney review the fee claim and help you decide if an objection is appropriate.

I hope this helps!
Joe

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