One of the questions I hear most often is:

“If I’m filing bankruptcy because I don’t have any money, why do I have to pay my attorney before the case is filed?”

It seems backwards, doesn’t it?

The answer isn’t because bankruptcy attorneys are trying to make life difficult. It’s because the Bankruptcy Code itself—and the courts interpreting it—leave us with very little choice.

The Simple Answer

The moment a Chapter 7 bankruptcy case is filed, most debts that existed before filing become dischargeable.

That includes any unpaid attorney fees you still owe your bankruptcy attorney for work performed before the filing of the case.

In other words, if I filed your Chapter 7 case while you still owed me attorney fees, I would be placing myself in exactly the same position as your credit card companies, medical providers, and other unsecured creditors.

My unpaid fee would be subject to discharge along with everyone else’s.

The Sixth Circuit Court of Appeals made this crystal clear in Rittenhouse v. Eisen, 404 F.3d 395 (6th Cir. 2005), holding that unpaid attorney fees arising from a pre-petition fee agreement are dischargeable because they are simply another unsecured debt not excepted from discharge under Sections 523 or 727 of the Bankruptcy Code.

Why Can’t the Attorney Just Bill Me After Filing?

Many people assume the attorney can simply send a bill after the bankruptcy is filed.

Unfortunately, that’s exactly what the law prohibits.

If the obligation to pay arose before filing the bankruptcy petition, it is a pre-petition debt.

Once the discharge is entered, the attorney generally cannot attempt to collect that debt.

The Bankruptcy Court for the Eastern District of Michigan recently reaffirmed this principle in In re McKelvey, explaining that the traditional Chapter 7 practice has always been for attorneys to collect their fees before filing because pre-petition fee agreements are dischargeable under Rittenhouse. The court also carefully examined modern “zero down” and bifurcated fee arrangements under the Bankruptcy Code.

Likewise, In re Abdel-Hak (Bankr. E.D. Mich.) recognized the practical problem facing Chapter 7 attorneys: because unpaid pre-petition fees are discharged, attorneys generally must collect their fees before filing the bankruptcy petition.

Isn’t There Any Exception?

Generally speaking, no.

The Bankruptcy Code lists specific debts that survive a Chapter 7 discharge.

Attorney fees owed to your own bankruptcy lawyer are not one of those exceptions.

That is exactly what the Sixth Circuit held in Rittenhouse.

Congress could change the law someday.

Until then, bankruptcy attorneys practicing in Michigan must follow the law as interpreted by the federal courts.

But There’s Good News About the Court Filing Fee

While attorney fees generally must be paid before filing, the Bankruptcy Court filing fee does not.

As of today, the Chapter 7 filing fee is $338.00.

Unlike attorney fees, the Bankruptcy Court permits many debtors to pay this filing fee in installments after the bankruptcy case has already been filed, provided the Court approves the installment application. In appropriate circumstances, qualifying debtors may even seek a waiver of the filing fee.

That means you do not necessarily need to have the entire $338 available before your case is filed.

Why This Actually Protects You

Believe it or not, this rule protects both the attorney and the client.

Your attorney can focus entirely on obtaining your discharge rather than worrying about collecting a discharged debt.

You don’t have to wonder whether your own lawyer will become another creditor calling you after the bankruptcy.

Everything is clean and transparent.

The Bankruptcy Court also requires every bankruptcy attorney to fully disclose the amount charged and permits judges to review attorney fees for reasonableness under Section 329 of the Bankruptcy Code. The courts take this responsibility seriously.

We Understand Saving Up Can Be Difficult

Many people stop paying credit cards and other unsecured debts while preparing to file bankruptcy.

Instead of continuing to throw money at debts that are likely to be discharged, they use those funds to pay their attorney fees and prepare for a fresh financial start.

For many families, this allows them to file within a matter of weeks rather than months.

The Bottom Line

If you’re wondering why your Chapter 7 attorney asks to be paid before filing, the answer is simple:

The law requires it.

Once your bankruptcy case is filed, any unpaid attorney fee for pre-petition work is generally discharged just like your other unsecured debts.

That’s why experienced Michigan bankruptcy attorneys collect their Chapter 7 fees before filing, while allowing the $338 Bankruptcy Court filing fee to be paid afterward in installments when appropriate.

If you have questions about the cost of filing Chapter 7 bankruptcy or need help developing a payment plan that works with your budget, contact the Law Offices of Walter Metzen. We’ll explain your options, answer your questions honestly, and help you get the fresh start you deserve.