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What Should A Bankruptcy Case Cost?

By Cathy Moran, California Bankruptcy Lawyer

Why is it that bankruptcy lawyers value their work so little that they rush to be the cheapest attorney in the Yellow Pages?  Why do they meekly accept what the bench considers a “presumptively fair” fee?  Why is eye popping quality not the hall mark of  the consumer bankruptcy bar?

The court adopted no-look attorney’s fee has something to do with it.  In an effort to avoid having to review each and every consumer bankruptcy case, the courts publish a benchmark price, the no-look fee.  They announce up front that they won’t look at the reasonableness of fees if the price charged doesn’t exceed the benchmark.

So, in a twinkling, that becomes the price for a consumer case in the community.  Bankruptcy law has seen a huge influx of new lawyers, many with little experience, having little basis other than price on which to compete with the mass of lawyers.  So the price of a bankruptcy case gets pushed down further.

Of course, none of this price competition, which we usually think of as a positive in the economic arena, makes the representation of consumers in bankruptcy law any easier in actuality.  Filing a bankruptcy under the “reformed” law is long on hoops to jump through, short on logic, and complicated by the foibles of  the real live people who are filing bankruptcy.  If the fee is small, the lawyer delegates more and analyzes the facts less;  anything to get more cases out the door.

Judge Karen Jennemann “gets” it.   She took two days of testimony when the UST in Orlando challenged the flat fee charged by attorney Marilyn Hochman, who was accused of overcharging clients for relatively simple Chapter 7 cases.  Hochman had charged two clients almost double the average rate charged by high volume bankruptcy firms, and in exchange, “personally explaining a confusing process and personally helping them through the maze of a bankruptcy case.”  That personal service from an attorney was worth the fee paid, the judge concluded.

It helped that Hochman had time records to back up the amount of her time and that of her paralegal spent on cases.

The judge recounted the testimony of two attorneys with high volume practices. ” ?Many Chapter 7 attorneys currently charge fees less than the actual cost of providing legal services. Thus, many attorneys, even those with extensive experience, actually are losing money with every Chapter 7 case they file.” Hochman’s records showed that she and her paralegal spent more than 17 hours on each of the challenged cases, where the volume filers  spent 5-10 hours per case. Jennemann’s memorandum decision

Representation in a bankruptcy case is not a fungible commodity, and the quality of the practice is not enhanced when the courts are complicit in leading the public to think so.  When courts contrive to actively discourage practitioners from filing fee applications that seek more than the no- look fee, they cheer on the race to the bottom as far as quality.

Those considering filing bankruptcy should not conclude that the services of one bankruptcy lawyer is the same as the next. Those attorneys filing cases should learn to keep appropriate time records and present fee applications to the bench.  Otherwise, how long can you continue to lose money on every case, as the judge noted?  You can’t stay in business at that rate.

 

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Full post as published by Bankruptcy Law Network on March 18, 2011 (boomark / email).