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Justice Department Issues Guidelines for Bifurcated Bankruptcy Payments

Unless you are a bankruptcy attorney, there would be no reason for you to know this. But traditionally, bankruptcy attorneys accept payment before filing bankruptcy as opposed to after. Why? The bill we present you with might be discharged as part of your bankruptcy. However, in some cases, a petitioner for bankruptcy might be in such a tight spot that they cannot pay the legal fees associated with the filing. In that case, they may be able to bifurcate their bankruptcy and pay after the bankruptcy discharge.

Bankruptcy trustees and creditors are quite suspicious of this arrangement, and creditor’s rights attorneys are raising the alarm creating alarm in the courts. Below, we will take a look at what the Justice Department has to say on the matter.

Preventing Fraud and Ensuring Fairness and Access

Traditionally, Chapter 7 bankruptcies are paid for upfront. Bankruptcy attorneys take your information, file your paperwork, represent you in front of the trustee, and help you get the debts off your record. If the fees are not paid upfront, then the attorney runs the risk of having no recourse to compel the client to pay their fees. However, some clients cannot afford to pay the fees. This placed bankruptcy attorneys in the position of allowing the client to defer the payment until after the bankruptcy was complete. But how do you do that without running the risk of losing the time spent on the client? Well, our solution was to provide contracts to clients that offered our services and requested payment later. Because this was not the typical course of things, there has been some pushback on the creditors’ rights side of the argument. 

As of right now, some courts have failed to see the problem with bifurcated fee arrangements, while other courts have expressly prohibited them. Still others have limited the situations under which they can be used while more jurisdictions debate the practice. 

How Does a Bifurcated Arrangement Work?

A client will ask an attorney to file a bankruptcy for them. The attorney will present the client with a contract for a retainer that may be as little as $0. The attorney then files a skeletal petition on behalf of the client. The client then has the option of representing themselves, hiring another lawyer, or representing themselves pro se (representing themselves). After the initial petition has been filed, the second part of the bankruptcy is triggered, and the attorney, if retained, would file the remaining documents and represent the client during the bankruptcy.

There is some angst over whether or not a client should be allowed to hire multiple attorneys during a single bankruptcy filing. Our court system does not like for multiple attorneys to be representing a single client during bankruptcy, and the reason is that the duties of an attorney are inconsistent with bifurcation. Further, the debtor incurs a debt immediately following the bankruptcy, which is inconsistent with the purpose of bankruptcy.

Pennsylvania is among the states that have adopted rules for bifurcated bankruptcies.

Talk to a Pennsylvania Bankruptcy Attorney Today

Chris Arrington represents the interests of Pennsylvania residents filing for bankruptcy. Call today to schedule an appointment and learn more about how we can help. 

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