Chapter 13 Fees and Costs
I often get asked by potential clients how much it will cost to file bankruptcy.
It is very difficult, if not impossible, to answer how much the attorneys fees for any bankruptcy will be before having a consultation and getting all the relevant information.
It’s even more difficult to do in a Chapter 13 bankruptcy case.
Because there are a lot of moving parts to a Chapter 13, representation lasts for 3-5 years, the fees can be taken prior to filing, or taken from your monthly plan payments, can be based on a flat fee (for a portion) or done entirely hourly.
These will be discussed a bit below, but the only way to know in your case what the costs will be, is to have a consultation with an experienced bankruptcy attorney in your area.
The Chapter 13 Plan
In a Chapter 13, you are required to submit a repayment plan to the court. The repayment can be anywhere from 0-100% of your debts, depending on a number of factors, including your budget, the type of debts you owe (some must be paid 100%, like certain taxes and domestic support obligations).
Attorneys’ Fees Can Partially Be Taken From Your Required Court Plan Payments
A portion of the attorneys fees can be taken from the monthly payments you already must make in the Chapter 13. So, as long as you are repaying less than 100% to your unsecured creditors, then you can usually pay your attorneys fees without it costing you anything additional because they will be taken from the payments you already have to make!
What happens is that your creditors just get less. So, for example, if you did not include the attorneys fees in your repayment plan, the creditors might get 43%, but if you do include attorneys’ fees, it might reduce what the creditors get to 40% (these are just hypothetical numbers).
Most attorneys in the Central District of California (including Los Angeles, Orange, Riverside, San Bernardino, Santa Barbara and San Luis Obispo counties) use the pre-approved flat rate of $5,000 for an individual case or $6,000 for a business (or self-employed) case. Those fees cover certain basic tasks, but not everything that can arise in a 3-5 year case.
But again, that number is relatively meaningless.
The real question is how much do you have to pay prior to filing your case? Because, in most cases, any attorney’s fees incurred after the case is filed will be able to be paid from your required plan payment.
In my office, that amount is determined primarily by the amount of your monthly plan payment. If your plan payment is high, then I will accept less up front. If your payment is low (meaning it would take much longer for me to be paid), then I will require somewhat more to be paid prior to filing.
Different attorneys handle it different ways, but there’s no way to tell you exactly how much it will be without first having a consultation to go over the specifics of your situation.
Potential Problem With Paying Attorneys’ Fees Through Your Plan
Again, this all depends on your budget and other factors, but let’s say the reason you’re filing a Chapter 13 is to catch up on mortgage arrears. Your budget is showing that you have just enough to catch up on those arrears and reinstate your loan over 60 months.
In that case, if you add attorneys fees to the repayment plan, your monthly payment will obviously have to increase, because the mortgage arrears must be paid in full.
So it might make sense here to pay more to your attorney prior to filing. But it’s a decision to make after you know all the specific numbers.
Attorneys Can Also Charge an Hourly Rate
Bankruptcy attorneys may opt to not use the flat rate mentioned above and instead apply to the court to be paid based on their hourly rate. But the fees still get taken from your monthly plan payments, so it shouldn’t affect your bottom line.
There are of course exceptions to this, but a consultation with a bankruptcy attorney should yield a complete explanation.
Image courtesy of Simon Cunningham