This is the fifth post in a series describing UpRight’s recommendations to the ABI Commission on Consumer Bankruptcy. Start at the beginning.
Under the U.S. Supreme Court’s interpretation of the statute, the U.S. Bankruptcy Code treats a debtor’s obligation to pay his attorney fees as a pre-petition obligation that is discharged in Chapter 7 bankruptcy. Recognizing that the inability to enter into an installment payment agreement with an attorney is often a roadblock for debtors wishing to pursue Chapter 7, some courts have employed a complicated reasoning that designates some fees a post-petition obligation. In those jurisdictions, the debtor can pay a portion of his attorney fees after filing.
Under other circumstances, however, the inability to enter into an effective contract to pay attorney fees over time forces the debtor to:
- Delay filing bankruptcy for a significant period while he or she saves up for the fee, often worsening financial difficulties in the process;
- File for bankruptcy pro se, which has been shown to substantially reduce the chances of successful completion of the bankruptcy case; or
- File for Chapter 13 bankruptcy in order to gain access to bankruptcy protection, since attorney fees may be paid through the Chapter 13 plan
Clearly, people in financial crisis should have the freedom to choose the type of consumer bankruptcy case that is most appropriate to their circumstances, rather than basing the decision on whether or not they can afford to pay attorney fees in advance of filing. Similarly, access to the U.S. justice system should not depend on whether the debtor has friends or family who are willing and able to assist with attorney fees.
If the Bankruptcy Code were amended to make attorney fees associated with the bankruptcy case non-dischargeable, debtors would have earlier and more flexible access to the relief bankruptcy is intended to provide.
