Chief Bankruptcy Judge Laurel M. Isicoff of Miami wrote an opinion that serves the purpose of a local rule by explaining how and when a consumer can sign up for a so-called bifurcated arrangement to pay fees for filing a chapter 7 petition in the Southern District of Florida.
Judge Isicoff said that the rulings in her June 16 opinion represented “the legal conclusions of all of the judges of the Bankruptcy Court of the Southern District of Florida.” She drew on prior opinions allowing bifurcated fee arrangements, such as In re Carr, 613 B.R. 427 (Bankr. E.D. Ky. 2020). To read ABI’s report on Carr, click here.
The Access-to-Justice Problem
Judge Isicoff began her 41-page opinion by laying out the “access to justice” problem created in 2004 when the Supreme Court handed down Lamie v. U.S. Trustee, 540 U.S. 526, 538 (2004). The high court’s decision meant that a chapter 7 lawyer cannot require the debtor, after filing, to pay for post-petition services if the obligation arose pre-petition.
Lamie became a burden for many consumers who can’t afford to pay the entire fee before filing. For those unable to pay up front, the decision left consumers with four options: (1) the debtor can delay filing until enough money is in hand; (2) the lawyer can perform the services and hope the debtor pays after filing; (3) the lawyer can bifurcate the fee arrangement; or (4) the debtor can file a chapter 13 petition to pay counsel as part of the plan.
The Bifurcated Arrangement
The cases before Judge Isicoff involved bifurcated fee arrangements with three different chapter 7 debtors and two law firms. In one case, the debtor paid $335 before filing. In the other two cases, the debtors paid nothing before filing. In other words, the lawyer in those two cases advanced the filing fee.
Post-petition, the debtors were to pay between $1,300 and $1,600 under separate engagement agreements signed after filing. All three debtors received discharges.
The law firms had separate pre-petition and post-petition engagement agreements with their clients, explaining services to be provided before and after filing. Essentially, the debtors could pay their lawyers after filing, hire a new lawyer, or proceed pro se after filing. Judge Isicoff’s opinion contains details about the disclosure that the lawyers made to their clients and the disclosures made to the court about the fee arrangements.
The Objections and the Rulings
The U.S. Trustee filed objections. Although not opposing bifurcated fee arrangements altogether, the U.S. Trustee wanted Judge Isicoff to, among other things, prohibit the post-petition payment for pre-petition services. The U.S. Trustee found shortcomings in some of the disclosures to the clients and to the court.
In short, none of the fee arrangements passed muster entirely. However, Judge Isicoff did not require the lawyers to disgorge any fees but told them to obey the dictates of her opinion in new cases.
For consumers’ lawyers in Florida, and for counsel elsewhere relying on Judge Isicoff’s opinion as authority for what works and what doesn’t work, the opinion must be read line by line. There are dozens of fine points throughout the opinion that must be obeyed punctiliously. We will make no effort to note them all here.
For this writer, the main takeaway from Judge Isicoff’s opinion is the excruciating detail that must be included in engagement agreements and in fee disclosures to ensure compliance with the Bankruptcy Code, the Bankruptcy Rules and the ethical standards for the state bar association.
Reading between the lines, the opinion means that local or state bar groups and judges should draft standard form engagement agreements and disclosures to be used by consumers’ lawyers to ensure that debtors are properly advised about their rights and the implications inherent in bifurcated fee arrangements.
Several of Judge Isicoff’s holdings are noteworthy:
- Post-petition agreements cannot be used to pay for pre-petition services.
- Before filing, the lawyer (not a nonlawyer) must meet with the client and analyze whether filing is appropriate and, if it is, under what chapter.
- Before filing, the lawyer at a minimum must prepare the petition, the creditor matrix, a statement of attorney compensation, the credit-counseling certificate and a motion to pay the filing fee in installments, if required.
- If the post-petition engagement agreement is filed immediately after filing, there must be a 14-day rescission period.
- When the lawyer has advanced the filing fee, reimbursing the lawyer after filing violates the Bankruptcy Code and the Rules of the Florida Bar Association. In other words, a no-money-down chapter 7 filing only works when the debtor pays the fee in installments after filing or the court waives the filing fee.
- The $335 that one client paid before filing was a reasonable fee for pre-filing services.
- The zero-dollar prefiling fee was also reasonable.
- In reviewing the reasonableness of fees paid after filing, the court takes into account not just the services that were actually rendered but also those that might have been required. Judge Isicoff found that the fees were all reasonable.
Observations
Judge Isicoff has a point. There is a problem with equal access to the bankruptcy process. Too many people file pro se, with predictably disastrous results. Others are shunted into a more expensive and lengthy chapter 13 case due simply to the inability to pay a retainer before filing. And others don’t file at all.
Until Congress acts, this writer recommends that local or state bar groups and judges should work up standard forms to facilitate bifurcated fee arrangements for chapter 7 debtors.
Chief Bankruptcy Judge Laurel M. Isicoff of Miami wrote an opinion that serves the purpose of a local rule by explaining how and when a consumer can sign up for a so-called bifurcated arrangement to pay fees for filing a chapter 7 petition in the Southern District of Florida.
Judge Isicoff said that the rulings in her June 16 opinion represented “the legal conclusions of all of the judges of the Bankruptcy Court of the Southern District of Florida.” She drew on prior opinions allowing bifurcated fee arrangements, such as In re Carr, 613 B.R. 427 (Bankr. E.D. Ky. 2020). To read ABI’s report on Carr, click here.
The Access-to-Justice Problem
Judge Isicoff began her 41-page opinion by laying out the “access to justice” problem created in 2004 when the Supreme Court handed down Lamie v. U.S. Trustee, 540 U.S. 526, 538 (2004). The high court’s decision meant that a chapter 7 lawyer cannot require the debtor, after filing, to pay for post-petition services if the obligation arose pre-petition.
Lamie became a burden for many consumers who can’t afford to pay the entire fee before filing. For those unable to pay up front, the decision left consumers with four options: (1) the debtor can delay filing until enough money is in hand; (2) the lawyer can perform the services and hope the debtor pays after filing; (3) the lawyer can bifurcate the fee arrangement; or (4) the debtor can file a chapter 13 petition to pay counsel as part of the plan.
The Bifurcated Arrangement
The cases before Judge Isicoff involved bifurcated fee arrangements with three different chapter 7 debtors and two law firms. In one case, the debtor paid $335 before filing. In the other two cases, the debtors paid nothing before filing. In other words, the lawyer in those two cases advanced the filing fee.
Post-petition, the debtors were to pay between $1,300 and $1,600 under separate engagement agreements signed after filing. All three debtors received discharges.
The law firms had separate pre-petition and post-petition engagement agreements with their clients, explaining services to be provided before and after filing. Essentially, the debtors could pay their lawyers after filing, hire a new lawyer, or proceed pro se after filing. Judge Isicoff’s opinion contains details about the disclosure that the lawyers made to their clients and the disclosures made to the court about the fee arrangements.
The Objections and the Rulings
The U.S. Trustee filed objections. Although not opposing bifurcated fee arrangements altogether, the U.S. Trustee wanted Judge Isicoff to, among other things, prohibit the post-petition payment for pre-petition services. The U.S. Trustee found shortcomings in some of the disclosures to the clients and to the court.
In short, none of the fee arrangements passed muster entirely. However, Judge Isicoff did not require the lawyers to disgorge any fees but told them to obey the dictates of her opinion in new cases.
For consumers’ lawyers in Florida, and for counsel elsewhere relying on Judge Isicoff’s opinion as authority for what works and what doesn’t work, the opinion must be read line by line. There are dozens of fine points throughout the opinion that must be obeyed punctiliously. We will make no effort to note them all here.