Bifurcated bankruptcy agreements are the latest trend in bankruptcy. I bet you did not know that bankruptcy had trends. But just like fashion, bankruptcy has trends. It is just that no one knows about them until they need to file for bankruptcy.
The latest trend is called a bifurcated fee arrangement. Typically, debtors need at least enough money to pay for their bankruptcy filing. The payment would be made upfront, and the bankruptcy could not be completed without it. However, some individuals found themselves in such a tight position that they could not afford to pay for their own bankruptcy.
The bankruptcy court system exists to help individuals who are in a tight spot. Its function is not to price individuals out of getting themselves out of a tight spot. In light of this, some bankruptcy attorneys adopted a process of allowing clients to pay small retainer fees to file a template with the bankruptcy court and allow the client to pay for the bankruptcy after it was completed in installments.
The biggest problem for the courts is that bifurcation allows a debtor automatically stop creditor actions against them. So logistically, they can file the same petition over and over simply to defer the judgment by the creditors and prevent creditors from collecting their debts. In fact, this happens in places like California, where companies will charge people to file half-filled bankruptcy petitions. Most states allow individuals to file incomplete petitions to get the automatic stay when they need it, but they have to complete the petition. The courts are concerned that petitioners will abuse the system to trigger the automatic stay and prevent creditors from collecting the money they are owed.
Conditions for a Bifurcated Bankruptcy
Attorneys in Pennsylvania are now advertising “$0 money down bankruptcies,” and the courts have created some rules to ensure that the process is not abused. One of those requirements is that you must pass the means test. For most individuals who do not have enough money to pay for their bankruptcy, passing the means test is a foregone conclusion. However, there are financial requirements as well. The debtor must be employed either full- or part-time. Further, the debtor needs at least $25,000 in gross annual income.
The Biggest Problem With Bifurcated Bankruptcy
The biggest problem right now for the courts is determining what constitutes a “reasonable fee” for simply filing a skeletal petition. In some cases, attorneys have upsold clients on bifurcated bankruptcies by charging them more than what the total bankruptcy would cost if they had paid upfront. That is a huge “no-no” since attorneys have a fiduciary duty to their clients. A determination of whether or not conduct is ethical is based on whether or not it is in the best interests of the clients. So charging additional fees is now become a matter for the courts to decide.
Ask About a Low-Money-Down Bankruptcy
Chris Arrington helps Pennsylvania residents who are in a difficult position. If you need to file for bankruptcy, call our office today and schedule an appointment. We can begin discussing your options immediately.