Kentucky Bankruptcy Law

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Attorney fees in a Chapter 13

Along with other benefits of a Chapter 13 bankruptcy, the attorney fees can be a bit more flexible than in a Chapter 7. Most attorneys prefer to have all fees paid up front in a Chapter 7 because it is a cleaner approach that keeps the attorney from being a creditor at the same time. In a Chapter 13, attorney fees are given a high priority for being paid through the plan, so there is less concern to the lawyer in getting paid in full. That allows a chunk of the attorney’s fees to be paid through the plan after the petition has been filed. This allows the attorney fees to be paid by the debtor without directly increasing their plan payment; it just lowers the amount the unsecured creditors will receive. However, this will not always work.

If you go back to the “Not as scary as it seems: Chapter 13 plan” post, you can see that there are certain tests applied to a Chapter 13 plan to see if it will get confirmed. One has to pay all their secured debt arrearages for property that is being kept, one has to pay unsecured creditors at least as much through the plan as they would have gotten in a Chapter 7, and there has to be sufficient disposable income to fund the plan AND all disposable income has to be accounted for in the payments. So, putting attorney fees on the back end of the plan interacts with each of these tests and could indirectly impact the confirmation of the plan.
One way that “back-end” attorney fee payments could impact the plan is that it forces the payments to be higher. For example, if you would have paid $10,000.00 to unsecured creditors in a Chapter 7, and your plan payment just barely covers that amount, adding attorney fees into the plan payment would drop the total to unsecureds down below $10,000.00 and so the plan could not be confirmed without increasing the payments. Assuming you were already paying all your disposable income into the plan, then raising the plan payment to make sure enough is paid to unsecured creditors AND the attorney fees would make the plan not feasible. Expenses would need to be cut or additional income found.

Sometimes, expenses and income are as good as they can get and the plan payments just do not allow the plan to be confirmed with attorney fees included in the plan. In those situations, the entire Chapter 13 attorney fee would have to be paid in advance. In the Western District Bankruptcy Court of Kentucky the “no look” attorney fees in a Chapter 13 is $2,500.00. In the Eastern District, there is not a “no look” fee and the typical Chapter 13 can run several hundred more or less than $2,500.00. In general, though, being able to put attorney fees into the Chapter 13 plan can help make filing bankruptcy affordable to more folks.

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September 20, 2010 - Posted by | attorney fees, Bankruptcy, Chapter 13, Plan | , , , ,

4 Comments »

  1. […] can also be more affordable for many debtors because the fees can often be paid post-petition (See this post on C 13 plans for more of an explanation). However, I also really like that Chapter 7 bankruptcies […]

    Pingback by Another reason to consider a Chapter 13 instead of a Chapter 7 « Kentucky Bankruptcy Law | November 1, 2010 | Reply

  2. […] consultations and services I wrote about attorney fees in a Chapter 13 and attorney fees in bankruptcy in general several months ago and I would like to now touch on the […]

    Pingback by Bankruptcy consultations and services « Kentucky Bankruptcy Law | February 25, 2011 | Reply

  3. […] I have addressed issues around bankruptcy fees and, more specifically, fees in a Chapter 13. As a result, I have spent considerable time contemplating how to make the fees I charge fair to […]

    Pingback by Are the fees you are paying your bankruptcy attorney fair? « Kentucky Bankruptcy Law | March 12, 2011 | Reply

  4. […] can also be more affordable for many debtors because the fees can often be paid post-petition (See this post on C 13 plans for more of an explanation). However, I also really like that Chapter 7 bankruptcies […]

    Pingback by Troutman & Napier, PLLC | Another reason to consider a Chapter 13 instead of a Chapter 7 | December 8, 2014 | Reply


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