Can Attorney's Fees Be Included in Bankruptcy?

Attorneys can be listed as creditors in a bankruptcy case.

The U.S. Bankruptcy Code permits debtors to include attorneys' fees in bankruptcy cases. Any outstanding attorney fees need to be listed in the bankruptcy petition, along with all of the other debts when the bankruptcy case is filed. Whether the attorney receives full payment, partial payment, or no payment depends on the chapter of bankruptcy filed and the amount of money the debtor is able to distribute to creditors.

Bankruptcy Petition

Complete the appropriate bankruptcy petition for the chapter of bankruptcy being filed. The bankruptcy petition is available on the U.S. Courts website. List the attorney as one of the creditors. Provide the name and address of the attorney, as well as the amount owed for legal services. The attorney will receive a notice of bankruptcy filing from the bankruptcy court after the petition is filed.

Proof of Claim

The attorney may file a proof of claim with the bankruptcy court. The attorney states the basis of his claim. Additional information includes listing the total fee amount, stating whether the claim is secured or unsecured, and providing an account or case number, if applicable. The attorney should also include any invoices or other type of documentation that verifies the validity of the claim.

Bankruptcy Payment

Most individual debtors either file Chapter 7 or Chapter 13 bankruptcy. Generally, debtors eligible for Chapter 7 bankruptcy do not have enough money to pay off most of their debts. The Chapter 7 debtor may need to turn over his most recent tax refund and any non-exempt assets to the trustee. Those items will be used to pay as much of the debts as possible, and then the case will be discharged. In a Chapter 7 case, the attorney may receive very little to no money back for outstanding fees. Chapter 13 debtors have the ability to set up a three-year to five-year payment plan. The amount of money the attorney receives in a Chapter 13 plan depends on the debtor's income and the amount of priority debts the debtor must pay off for the duration of the case.

Bankruptcy Attorney's Fees

Bankruptcy attorneys know that if they don't receive a full payment upfront, they could be included as a creditor in the bankruptcy. Typically, Chapter 7 attorneys require full payment for legal services prior to filing the bankruptcy case. Attorney fees for Chapter 13 cases tend to be more expensive than for Chapter 7 cases. Attorneys who handle Chapter 13 cases usually charge thousands of dollars due to the length and amount of work. For those types of cases, the debtor tends to pay a significant portion of the fees upfront and the remaining fees are part of the Chapter 13 payment plan. The amount of the bankruptcy attorney's compensation is listed in the petition, and the trustee approves the additional payment through the Chapter 13 plan.

Discharge

An attorney needs to file an objection to discharge with the bankruptcy court if he believes he is entitled to receive full payment based on the provisions of the bankruptcy code. When the attorney's fees are discharged, the attorney cannot pursue the debtor for any further payments. Continuing collection attempts is a violation of the bankruptcy code and the attorney would be liable for sanctions.

References

• U.S. Courts: Bankruptcy Forms
• Cornell University Law School: Title 11 -- Bankruptcy
• U.S. Courts: Discharge in Bankruptcy