One conversation I have had many times over the 29 years I have been practicing law is about the fees bankruptcy lawyers charge their clients. "I can't afford to go bankrupt" is a common reaction when I give a prospective client a fee quote. A related problem occurs when a prospective client is cheered up when I offer to accept payments against my bankruptcy retainer, but wants me to file the bankruptcy immediately and take payments after the case is complete. I try to be as clear as possible that the entire retainer must be paid before I can file the case.
The first reason for this policy is the conflict of interest. A lawyer may not represent parties on opposite sides of a dispute. For example, I could not represent both a husband and a wife who are divorcing. What benefits one client harms the other client. That is a classic conflict of interest. In the bankruptcy setting I cannot represent the debtor who is filing a bankruptcy and also one of his creditors. For example I cannot file a client's bankruptcy, and then go to the bankruptcy court to request stay relief on behalf of my client's mortgage company so that they can foreclose on his mortgage. That is clearly a conflict of interest. What is a creditor? A creditor is someone owed money by the debtor. If I file your bankruptcy, and you still owe me $1800 for my fees in filing the bankruptcy, I am your creditor. We have already seen that I can't represent you and also your creditors at the same time. So taking payments for bankruptcy services after the case is filed creates an impermissible conflict of interest.
The second reason for the policy is discharge. When you file bankruptcy, the Bankruptcy Court puts a federal injunction against debt collection in place called "the automatic stay". This is one of the chief benefits of filing a bankruptcy. This is the reason all those annoying creditors who have been calling you every fifteen minutes for the last few months finally leave you alone when you file a bankruptcy. This is the reason the judgment creditor that has been garnishing your salary for the past year has to finally stop. What this means for my fees is that I can't collect from you post bankruptcy. I can't remind you that you still owe me money, I can't send you a bill, I can't ask you to change a payment plan. If I did I would be violating federal law.
Finally the pragmatic reason is that it is generally better to be paid for services in advance. In the 29 years I have been doing this I have taken a very few cases with promises of future payment. I have a dismal record in those cases. I do not mean to impugn anyone's honesty when I say that this payment arrangement has not treated me well over the years, and I simply won't do it any more.
All is not lost, however. I will accept payments from clients over time. I won't file the bankruptcy until I get the full retainer, but I will help you buy enough time from your creditors to save the rest of the retainer up. I will field your collection calls, I will respond (within reason) to demand letters and lawsuits, and I will help you to understand the timing of adverse lawsuits and other collection matters so that we can chart our way together toward a successful bankruptcy case.
Very informative post. It sure is depressing when you get to the point where you have to consider bankruptcy. Back in 2005, my wife and I filed bankruptcy, and I will have to say, if it wasn't for the lawyer we hired, we would have been totally lost. Hiring experienced and efficient professionals is a must when dealing with delicate situations.
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