A bankruptcy judge ruled that a consumer bankruptcy attorney has to return client payments in 17 chapter 7 cases where he improperly billed for services and failed to provide appropriate required disclosures, Bloomberg reported. J. Ken Gallon failed to properly disclose his compensation to the court or the source of such payments; he charged unreasonable fees; and he allowed legal fees to be paid before case filing fees were paid in full, wrote Chief Judge Terrence L. Michael of the U.S. Bankruptcy Court for the Northern District of Oklahoma. At the center of the court’s problems with Gallon’s practices was his use of what the court called the “BK Billing Model.” BK Billing is a Utah company that factors receivables for consumer bankruptcy attorneys. It essentially buys the attorneys’ receivables for about 75 percent of their face value. Many, including ABI’s Commission on Consumer Bankruptcy, have highlighted the problem of access to chapter 7 for consumers unable to pay fees up front, because an attorney can’t collect on a pre-petition debt after the case is filed. Currently, many of these debtors are compelled to file for chapter 13, which allows for paying attorneys fees over time, but is also significantly more expensive, time-consuming and far less successful in discharging debts. BK Billing proposes a system where the debtor enters into two separate agreements with his bankruptcy attorney: one for services rendered prior to the filing and another for post-filing, or post-petition, services. Gallon had sloppy record-keeping, and the required disclosures he filed were often inaccurate and failed to indicate when he was paid from advances by BK Billing, which would subsequently collect monthly payments from the client. Worse, the court was “troubled by Gallon’s practice of charging a higher fee to his clients that use the BK Billing Model than to his conventional clients.” However, BK Billing cautions lawyers not to charge clients a premium when they use the company’s services. The court voided Gallon’s post-petition contracts and ordered him to return whatever the debtors wound up paying to BK Billing. He could keep the funds that were paid by the clients directly to him, it said. The case is In re Wright, 2018 BL 318559, Bankr. N.D. Okla., 17-11936, 9/4/18.
