How The Bankruptcy Court Protects You From Getting Overcharged

bankruptcy legal fees court oversightWhen you’re filing for bankruptcy, it’s a safe bet that you’re not rolling in spare cash.  So when you’re looking for a lawyer help you, it’s natural to get the best deal.  But did you know that the bankruptcy court saves you from being overcharged?

Every bankruptcy lawyer has the right to set fees at whatever level the attorney deems appropriate.  But under the U.S. Bankruptcy Code, your lawyer is required to disclose those fees to the court.  And if the fees are found to be unreasonable, the judge can order your lawyer to give it back to you.

How A Bankruptcy Lawyer’s Fee Is Determined To Be Reasonable

In a Chapter 7 case, Section 329 of the Bankruptcy Code authorizes the bankruptcy court to determine the reasonableness of the legal fees paid to your lawyer in connection with your bankruptcy case. Bankruptcy Rule 2017(b) provides that, after notice and hearing, the judge may determine whether the fee you paid to your bankruptcy lawyer is excessive.

For bankruptcy cases filed in New York, for example, the court has determined that the standard for determining reasonable compensation in a Chapter 13 bankruptcy case is helpful in determining the compensation to be allowed to for a Chapter 7 case. See In re Datta, No. 08-72740 (Bankr. E.D.N.Y. July 2, 2010).

Bankruptcy Code Section 330(a)(4)(B) provides as follows:

In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor and the other factors set forth in this section.

Reasonable Is In The Eye Of The Beholder

The burden of proof on the reasonableness of the legal fees charged rests with Counsel according to Hensley v. Eckerhart, 461 U.S. 424, 437 (1983) and In re Bolton, 43 B.R. 598, 600 (Bankr. E.D.N.Y 1984).  But what does that mean?

In the case of In re Henry, Case No. 09-79579-ast (Bankr. E.D.N.Y. 2011), a Long Island Chapter 7 legal fee set at $2,000 plus filing fees was considered to be reasonable.  In another case, In re Alessandro, Case No. 10-12511 (Bankr. S.D.N.Y. 2010) a Chapter 7 legal fee set at $4,000 was unreasonable where the lawyer didn’t do the proper preparation in putting together the case for filing.

Other jurisdictions have held different fees to be just fine in some cases, not permissible in others.

How You Know If A Legal Fee Is Reasonable

Your legal fees have nothing to do with what you’re able to pay; rather, it all has to do with the level of experience of your lawyer, how complex your case is (according to your lawyer, not according to you or your best friend’s brother’s uncle), and the type of bankruptcy case involved.

Chapter 13 is typically more expensive than Chapter 7, for example.  But that’s only one part of the equation, complex as it may be.

In the end, it’s up to you to take the time to speak with a number of bankruptcy lawyers and get a feel for the level of complexity your situation presents as well as each lawyer’s experience level.  Dig around online for reviews, testimonials, and enough information to figure out if this is the right lawyer for you.

In the end, it’s going to be time well spent.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.