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Large Sanction Awarded Against Law Firm For Collecting Fees After Bankruptcy Case Was Filed

On Behalf of | Sep 2, 2014 | Bankruptcy |

In a recent case, Wheeler v. Collier, 2014 WL 2155213 (W.D. La. 5.22.14), the court awarded a total judgment in the amount of $50,000 against a Louisiana law firm for collecting fees from their client after the bankruptcy case was filed. The firm charged the debtor a total of $1,300 for preparing and filing a Chapter 7 case on her behalf. Prior to the filing of the case they collected $100 from her, while the case was pending they collected an additional $800 and after the discharge was entered they collected an additional $400. When the debtor first met with the lawyers in the firm they had her sign a “Credit/Debit Authorization Form.” This allowed the firm to debit her bank account $100 per month. The law firm did not provide the debtor with a copy of this form or her retainer agreement.

The Debtor alleged that the law firm had violated several statutes. First, it violated U.S.C. §526 (c)(2) by not providing the debtor with a copy of her contract for the services to be provided to her by the law firm. Second, it violate §362(a)(6) by collecting fees post-petition, and finally, it violated §524(a)(2) by collecting money from her after the discharge was entered. The court found that the law firm had violated all three statues.

It awarded the debtor $10,000 in damages under the equity power of the court under §105(a) and $30,000 in punitive damages. It awarded another $10,000 as sanctions for contempt payable to the clerk of the court and awarded the debtor reasonable attorney’s fees. It also ordered the law firm to cease advertizing “No Money Down” bankruptcies. This practice gave the law firm a leg up on their competitors, but came at a large price.

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