It is now possible to declare bankruptcy even if you cannot pay the fees

It’s hard to file for personal bankruptcy when you’re dead broke.

This is why a number of South Florida bankruptcy law firms are offering their clients “no down payment” or “low money” plans to ease their long journey back to health. financial when they file for Chapter 7 under the US Bankruptcy Code. . The provision allows people to wipe the slate clean of the build-up of credit cards and similar debt.

The fee agreements, which involve two separate payment agreements between lawyers and their clients, could become critical this year for struggling consumers who are burdened with household debt racked up during the COVID-19 crisis. It could mean the difference between getting help in court or not.

“The problem we had is that clients have come to us and their wages are foreclosed, their assets frozen and every paycheque that passes, they lose it to a creditor,” he said. Fort Lauderdale lawyer Chad Van Horn. Van Horn Law Group. “Some people are broke. They really don’t have the money.

Another firm – Miami law firm Semrad – has a subsidiary called DebtStoppers whose TV ads tell hard-pressed consumers they can start Chapter 7 bankruptcy proceedings without paying anything up front.

But earlier this year, the U.S. trustee for the South Florida District, whose role is to ensure bankruptcy court rules and procedures are followed, complained to the chief justice that the two companies had exceeded limits. their fee arrangements and payment options for clients. .

Among other things, the trustee opposed the firms’ use of so-called “bifurcated” fee agreements with clients – one signed before a bankruptcy petition was filed with the court, l ‘other for services rendered by lawyers thereafter. One concern was that law firms were charging too much money for legal work after filing a case.

In a petition to Chief Bankruptcy Judge Laurel M. Isicoff, the trustee also complained that the firm’s fees in three cases ranging from $ 1,200 to $ 1,900 were not “reasonable”.

But Isicoff, in a 41-page decision, concluded that the two-tier payment method should be maintained. She also found that companies had not overcharged their customers.

However, the judge wanted companies to be more explicit in their agreements with customers on the services they intend to provide, as well as on the time and price.

No complaints

None of the many Van Horn customers interviewed by the South Florida Sun Sentinel last week experienced any sense of confusion or misunderstanding about the cost of the services they received from the company, or how they owed them. pay under the two agreements they signed with the company. .

One managed to settle her debts through Chapter 7, while another expects her case to be resolved in August.

Raine Dyer, 48, a former college admissions representative, completed her case a year ago.

“They made a payment agreement with me, which was very helpful at the time,” she said of her deal with the company.

Bankruptcy, she said, was her only financial alternative after losing her job and severing a personal relationship.

“At that time for me that was the option, yes,” she said.

Now she goes through job interviews and tightly controls her spending,

“I was a big fashion girl,” she said. “I don’t want to go down this road. You live and learn so that you are no longer in this position.

Ralph Bumgardner is a retired Michigan and Broward County guidance counselor awaiting completion of his case.

“There is a payment plan that is easy for the needy and need to end this process,” he said.

“In my own situation I’m 77 and made a lot of financial mistakes and got to the point where I needed dental implants, hearing aids and going into assisted living. “, did he declare. “It allowed me to do the things that I hope to accomplish.”

“I had thought about it for maybe six months,” Bumgardner added. “I always thought there was an embarrassment associated with bankruptcy, and they assured me that other people had done it to their advantage. It kind of gives you an idea that you are not alone.

How it works

Typically, law firm clients sign a single agreement to cover the services to be provided throughout their case.

When clients first meet their lawyers, the discussion is a free consultation. Then the lawyer will quote them a fee to guide them through the Chapter 7 case. The cost can range from $ 1,200 to $ 2,000, depending on the lawyers and court documents. This includes administrative fees and various costs related to the presentation of financial calendars and meeting with creditors. As soon as the lump sum has been paid, the firm will submit the file.

But not everyone has the money to pay their lawyer a lump sum.

The benefit of “less money” before filing allows a hard-pressed client to take their case to court quickly. Filing involves submitting basic forms about the person’s finances. Lawyers, however, are not authorized by law to pay a client’s file fee, which in South Florida is $ 335.

Once the file is filed, the client signs the second agreement to pay for the rest of the work, which includes a meeting with the creditors.

“This is one of our biggest problems – how do you pay for consumer bankruptcies? Said Robert Lawless, professor at the College of Law at the University of Illinois. He was a reporter for the American Bankruptcy Institute’s Commission on Consumer Bankruptcy, which reports to Congress.

“There had to be a way for people to pay attorney fees through some sort of payment plan,” Lawless said of the opinion. “The basic idea is, ‘yes, there should be a structure available for people to pay their Chapter 7 bankruptcies.’

In his opinion, Isicoff said that there are four ways a person filing Chapter 7 can pay their lawyer:

• Deposit may be delayed until all charges are prepaid.

• Lawyers can file the case without being paid in full up front and hope the client will voluntarily pay additional fees after filing.

• The lawyer can divide legal services into two parts.

• The client can file a Chapter 13 case, which requires a creditors repayment plan. In this case, legal fees can be paid after filing the case.

But people who are heavily in debt and strapped for cash face a dilemma if they can’t find a lawyer to help them, Isicoff wrote.

Access to court

“Without access to an attorney, a Chapter 7 consumer debtor must either file a complaint without assistance or, perhaps worse yet, file with the assistance of a bankruptcy petition preparer, many of whom charge more than attorneys,” and who are prohibited from providing any legal assistance, ”she said.

Alan Crane, a bankruptcy attorney at Furr & Cohen PA in Boca Raton, said the dispute over separate payment agreements was a national issue.

“It’s still a bit new and unstable across the country,” he said. “It was sort of a test case for lawyers, trustee and judges to advise on whether these deals were acceptable under the bankruptcy code and under what circumstances.”

“The judge is trying to meet a need,” Crane added.

Part of the need is to make sure consumers understand their rights when they first walk into their lawyer’s office. Among other things, one is the right to hire another lawyer after their case is filed, said Patricia Redmond, a bankruptcy lawyer at Stearns Weaver Miller in Miami.

Van Horn said the opinion gives clients “peace of mind that this is a legal practice that people do. It is no longer like a gray area. It is very clear what the judges of this district think about it.

There is also more detailed information for clients on what is contained in their pre-petition and post-petition agreements.

“We believe that our agreements were in line with [the law] anyway, ”Van Horn said. “In fact, we got exactly what we needed here. “

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