Using Tax Refunds to Pay Attorney Fees
In 2004, the U.S. Supreme Court ruled that all attorney fees in a Chapter 7 bankruptcy must be paid by the client before the filing of their case.Â The court’s rationale was based on the fact that once a Chapter 7 bankruptcy was filed, any debts that the client owed at that time of filing were eliminated, including owed bankruptcy attorney fees. This ruling therefore made any unpaid attorney fees uncollectible after the filing of the client’s Chapter 7.Â The ruling also did away with the commonly-used “split fee”, where bankruptcy attorneys would allow their clients to pay a portion of the attorney fees pre-filing, and then pay the remainder of the owed fees after the filing of their Chapter 7 bankruptcy.
While the majority of bankruptcy attorneys nowadays offer a monthly payment plan for their attorney fees, a Chapter 7 bankruptcy can’t be filed until all the attorney fees are paid-in-full.Â This can make it difficult for those people who need their cases filed immediately because of a garnishment, utility shutoff, etc., but don’t have the funds to pay theentirety of their attorney fees.Â This is where tax refunds can come in handy.
The largest number of Chapter 7 bankruptcies and Chapter 13 bankruptcies are filed in the first-quarter of the calendar year, and this is largely due to the fact that most people receive their tax refunds around this time.Â Many bankruptcy clients have discovered that it’s a good idea to use their tax refunds to pay their bankruptcy attorney fees in full and expedite the filing of their cases.Â This can be especially beneficial for those who have
a “rush case” that involves a foreclosure, repossession, license suspension, frozen bank account, garnishment or utility shutoff.
So keep in mind it’s typically smart to take advantage of the lump-sum received from a tax refund to get your attorney fees paid. The faster your attorney fees are paid, the faster your case can be filed. The faster your case is filed, the closer you are to a financial fresh start.