How Billing Works for Bankruptcy Lawyers

Billing for bankruptcy lawyers varies depending on the type of bankruptcy, as well as depending on attorney preferences for how to charge clients. 

Regardless of the type of filing, however, the bankruptcy code has strict regulations for attorney billing fees that attorneys must comply with. 

This guide explains the basics of how bankruptcy billing works, including when and how to collect fees and what limits the court imposes when charging clients. 

Billing Process for Different Bankruptcy Types

There are a few different types of bankruptcy filings, including Chapter 7—which involves liquidating non-exempt assets to pay off creditors—and Chapter 13—which allows individuals with a regular income to establish a structured repayment plan over three to five year. The billing rules vary based on the type of filing.

When billing Chapter 7 clients, it's customary for attorneys to collect the entire fee up-front before filing. Once the case has been filed, an automatic stay goes into effect that would prevent the collection of unpaid fees so receiving full payment up-front is essential. 

When billing Chapter 13 clients, attorneys are typically paid through the Chapter 13 repayment plan. However, because not all bankruptcy filers complete their approved plans, most attorneys require a pre-filing payment of at least the amount due for a Chapter 7 filing plus the cost of the bankruptcy court's filing fee. Attorneys who are paid through a proposed plan must file a timely request for payment, typically within seven days from the confirmation hearing.

When representing clients in both Chapter 7 and Chapter 13 bankruptcies, attorneys may choose to either require a lump sum payment or to allow clients to pay in installments to make filing more affordable for cash-strapped clients.  When accepting installment payments, the best practice is still to file the case only when the full fee is paid for Chapter 7 or when the required initial payment is made for Chapter 13. 

Complying with Requirements 

Multiple provisions of the bankruptcy code establish rules for attorney fees. Regulations that attorneys must follow when billing include the following:

• Bankruptcy Rule 2017 authorizes the court to determine if an attorney's fees were reasonable or excessive. The court may examine the reasonableness of fees on its own or upon the request of any of the parties involved in the case. 

• Section 329 of the Bankruptcy Code requires that attorneys representing clients in bankruptcy proceedings must file with the court a statement of compensation paid or agreed to be paid in connection with the case.

• Section 330(a) of the Bankruptcy Code outlines the factors the court uses to determine if attorney fees are reasonable. These factors include:

  • The time spent providing legal services

  • Rates charged for legal service

  • Whether the services were necessary for the proceedings

  • Whether the services were performed in a reasonable time given the complexity, nature, and importance of the issue

  • Whether the compensation is reasonable based on customary fees charged by attorneys in similar cases. 

Under 11 U.S. Code § 330, the court will not allow compensation for duplicative services, or unnecessary services. 

One of the easiest ways to comply with court requirements is to automate the process. PointOne’s billing software allows firms to set their own rules and guidelines, which are applied to all time entries and pre-bills. This makes staying ahead of court requirements easy so you avoid compliance issues.

Presumptively Reasonable Attorney's Fees

Some jurisdictions have established guidelines to streamline the fee review process. In these jurisdictions, courts don't need to review attorney compensation if fees remain within established guidelines. Those guidelines vary by jurisdiction. 

For example, In the Middle District of Pennsylvania, Rule 2016-2 Compensation of Debtors' Attorneys in Chapter 13 Cases allows attorneys to be compensated through:

1. Hourly billing by the Lodestar method

2. Accepting a presumptively reasonable fee of up to $5,000 including all legal services, with limited exceptions including the following:

   1. An additional fee of $1,000 is allowed if the debtor must file a business report or hold a controlling interest in a corporation or LLC. 

   2. An additional fee of $600 may be charged if the debtor is making mortgage payments through Chapter 13

   3. An additional fee of $600 may be charged for each post-modification plan modification approved. 

   4. Attorneys can also collect additional fees upon showing good cause. 

The Lodestar method involves determining appropriate fees by multiplying a reasonable number of hours by a reasonable hourly rate. The attorney's usual billing rate is considered a presumptively reasonable rate as long as it's in line with prevailing rates charged by lawyers with comparable skill and experience within the same community. 

When using the Lodestar method, attorneys are required to submit evidence to the court supporting the hours worked. The request for fee payment must be sufficiently detailed to ensure that the court can independently determine that the hours are justified. 

Not every jurisdiction has rules in place establishing presumptively legal fees and, in jurisdictions that do, the allowable amounts vary. Attorneys should know the rules within their geographic areas and should carefully consider whether to simplify their billing process by staying within the guidelines for most bankruptcy cases. 

PointOne's automated tools can help you stay within these guidelines even in complex bankruptcy cases, ensuring your billing process is accurate, effective, and designed to get you paid without problems. Reach out today to book a demo of PointOne to see how we can help streamline your bankruptcy billing practice to make billing easier than you imagined.