Bankruptcy

One Consumer Bankruptcy System, or Many?

By Lois R. Lupica

As Principal Investigator of the Consumer Bankruptcy Fee Study, I've been gathering "qualitative data" from attorneys, trustees and judges about how the consumer bankruptcy system is working. I have conducted over a dozen focus groups, many, many one-on-one interviews, and have been privy to myriad list-serve threads discussing the costs of BAPCPA generally and more specifically, consumer bankruptcy attorney fees.

Here is one preliminary observation: there is a huge disparity with respect to how and how much attorneys are paid, depending upon where in the country they practice. This is not a shocking revelation on its face, given the disparities in the cost of living from city to city. The data reveal, however, variations that go beyond big city=expensive, small town=cheap.

For example, with respect to Chapter 13 practice, there are significant variations from state to state, district to district, court to court, and even judge to judge. Some jurisdictions have what are known as "presumptive" or "no-look" fees (the fee below which no questions will be asked, and no challenge will be made). In other jurisdictions, there is no presumptive fee at all: an attorney is paid by the hour, upon submission and approval of a fee application. 

In some jurisdictions, lawyers have quite a bit of input into the process of setting no-look fees. One attorney described the following:

[T]he judges get together with small filers, medium filers, and large filers and trustees and say, "Hey, what you guys need to do is let me know what you need to charge.  Give me a figure, kind of roughly an average case.  What we're going to do is put that as an average figure, which is $3,250.  Now you can go with that if you want. and that's $3,250 at confirmation.  Keep track of your time afterwards and do supplemental fees. Or you can just do it hourly, right from the start. We'll just pay you hourly, or you can do $4,500 for the life of the case."

In other jurisdictions, however, no-look fees are set without local attorney input as to the amount; in these cases, the fee is set unilaterally by a judge, the court, or in consultation with the local standing trustee.

In some instances, the no-look fee acts as an absolute cap on the total amount an attorney may charge a consumer client, no matter what happens in a case. In the jurisdictions that have set no-look fees, they range from a low of $1,500 to a high of $5,000.

In many jurisdictions, it was no simple matter to discover what the no-look fee is (and what the historical, pre-BAPCPA no-look fee was). In some places, the no-look fees are codified in a local rule, included in a general order, standing order, administrative order or a memorandum. In yet other jurisdictions, the no-look fee is simply a matter of court policy, an unwritten practice, or a guideline.

How much it costs a consumer debtor to file for bankruptcy under Chapter 13 and how much a lawyer gets paid, depends in large part on where consumers file and where a lawyer practices.

Full post as published by Credit Slips on March 29, 2011 (boomark / email).