Can Attorneys Collect Fees From Clients After They File Bankruptcy?

Can Attorneys Collect Fees From Clients After They File Bankruptcy?

| Feb 7, 2014 | Bankruptcy |


The short answer is no, they cannot. In a recent case, Fernandez v. Chang, 2014 WL 32201(Bankr. D. Md. 1/6/14), the Bankruptcy Court ordered debtor’s counsel to disgorge all fees collected post-petition and also awarded the debtor compensatory and punitive damages. The court found that the debtor’s attorney, who had a practice of collecting only a portion of her fee pre-petition and the balance post-petition, had violated the automatic stay of 11 U.S.C. Section 362.

The court cited several cases, including, Bethea v. Robert J. Adams & Associates, 352 F.3d 1125, 1127 (CA7 2003); Rittenhouse v. Eisen, 404 F.3d 395, 396 (CA6 2005); In re Fickling, 361 F.3d 172, 177 (CA2 2004); In re Biggar, 110 F.3d 685, 687 (CA9 1997) for the proposition that pre-petition debts for legal fees are subject to discharge. Section 523 of the Bankruptcy Code does not except pre-petition attorneys’ fees from discharge. See, In re Gourlay, 483 B.R. 496 (BC E.D.Mich.2012); In re McTyeire, 357 B.R. 898 (BC M.D. Ga.2006); In re Nibbelink, 403 B.R. 113 (BC M.D. Fla.2009).

Some attorneys expressed concern that they will not be able to assist potential debtors who have current wage or bank account garnishments if they cannot collect part of their fee post-petition. Unfortunately, the law does not allow for the collection of fees from the debtor after the case is filed. Judge Mannes indicated in the Chang case that he was “astounded that none of the Chapter 7 trustees saw fit to alert the United States Trustee that this course of conduct was going on, so that it could be put to an end.” As a result of this comment, in my capacity as a Chapter 7 Trustee, I am warning all debtors’ counsel not to collect any part of their fees from their clients after the case is filed. If I continue to see this practice, I will have no choice but to report it to the U.S. Trustee’s Office. My clients are told at the initial interview that I cannot accept any payments from them the towards my fee after the case is filed. I advise them that to do so would be to jeopardize my law license. Now that Ms. Chang has been suspended from practice, I see that my advise was correct.

The attorneys at the law firm of Laura Margulies & Associates, LLC have assisted thousands of clients through bankruptcy. Please call us for a consultation today. Laura Margulies is a principal in the law firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy matters in Maryland and the District of Columbia. To learn more about our firm visit our web site at www.law-margulies.com.