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A Chapter 13 bankruptcy is a 3-to-5-year-long process during which you repay some of the debt that you owe to your creditors under the protection of the Bankruptcy Court, discharging the remaining balance only at the end of the payment period.

Chapter 13 bankruptcy is a different animal than Chapter 7 bankruptcy

In most cases, a Chapter 7 bankruptcy is a fairly tight process. A Chapter 7 generally involves 2 or 3 meetings with your bankruptcy lawyer prior to the filing of your petition in order to assemble and gather the information required to complete that bankruptcy petition.

Once that information and documentation is properly assembled and in the hands of your attorney, your attorney drafts your Chapter 7 bankruptcy petition and then files it electronically with the US Bankruptcy Court. About 30 days later, you have a single hearing called the 341 Meeting of Creditors along with your attorney. About 60 days after that, you receive your discharge and done.

The entire process, from the date of filing of the petition until the date of issuance of the discharge, generally takes approximately 4 months.

Of course, there is much that can go wrong or differently in a Chapter 7 bankruptcy than what is described above, but that timeline generally accounts for somewhere around 90% of all Chapter 7 bankruptcy cases filed.

Given that general predictability and the concise time-frame involved, most Michigan bankruptcy attorneys are able to charge a flat fee for the service.

What is a “flat fee?”

It is a set amount of money that covers all of the work done by your bankruptcy attorney for the entire Chapter 7 service.

What will differ from attorney to attorney is what the amount of the fee is, how tailored it is to the complexity of your particular case, or what amount of that flat fee needs to be paid up front upon retainer of the attorney and how much needs to be paid prior to the filing of the Chapter 7 case (which generally stays the collection of all pre-filing debts, including fees owed to one’s own bankruptcy attorney).

Why Chapter 13 Bankruptcy Attorney Fees Differ from Chapter 7

First, please note that this post will not describe in detail how a Chapter 13 bankruptcy process works. For a description of the Chapter 13 process, please click here.

That said, attorney fees for Chapter 13 bankruptcy differ from the fees charged for Chapter 7 bankruptcy because the process itself is very different.

Rather than a comparatively short 4-month process, a Chapter 13 bankruptcy is a 3-to-5-year-long process during which you repay some of the debt that you owe to your creditors under the protection of the Bankruptcy Court, discharging the remaining balance only at the end of the payment period.

During that lengthy process, your bankruptcy attorney must be continually at work and continually vigilant.

He or she must, first, spend 4-to-6 months or more attending hearings and getting your case “confirmed” (approved by the Court).

Once that’s done, years of service are yet required, during which your attorney must:

  • monitor your regular payments;
  • ensure that you turn over tax returns and refunds or annual income bonuses as may be required;
  • ensure that your payment plan is functioning mathematically at all times (including performing at least 2 “bi-annual” reviews or audits of your case each year);
  • ensure that your creditors behave themselves and do not act contrary to the Court’s ongoing injunction against collection actions outside of the Chapter 13 process;
  • answer your questions;
  • keep you updated as to the progress of your case;
  • remain obligated to the success of your Chapter 13 process and to you as a client in dozens of little ways throughout that 3-to-5-year plan payment process.

Will your mortgage payment change? Will your mortgage servicer change? Will you owe taxes to the IRS for a tax-year after the confirmation of your Plan? Will you need to modify your Plan to account for a personal disaster such as a necessary roof repair or automobile replacement? Will you and the spouse you filed the case jointly with suddenly decide to divorce? Will your spouse die?

Your attorney must be available to assist and advise you of your options at every step along with the way. Much can happen in anyone’s life in any given 5-year period.

There is no flat fee that can adequately account for the amount of time and out-of-pocket expenses that your attorney might be required to expend over that stretch of time.

How Chapter 13 Attorney Fees Work

The vast majority of bankruptcy attorneys in southeastern Michigan, therefore, charge hourly fees for Chapter 13 services.

Depending on the attorney’s experience, continuing legal education, whether or not they are Board Certified as is Attorney Walter Metzen, that hourly rate charged may be higher or lower.

Whatever the rate charged by your Chapter 13 bankruptcy attorney, what is ultimately paid to the attorney for Chapter 13 services will therefore depend upon the number of hours worked by your attorney in your case.

It is important to remember that, in Chapter 13 bankruptcy, other than whatever a client may pay to their attorney initially upon retainer, all attorney fees are paid through the Chapter 13 Plan itself.

That is, the attorney fees are paid out of the monthly payments you make to the Chapter 13 Trustee throughout your case. Attorneys are paid their fees by the Chapter 13 Trustee ahead of unsecured and other lower-priority creditors.

In order to be paid anything by the Chapter 13 Trustee, your attorney must file a sort of motion called a Fee Application which details the time and costs expended on your behalf and at what hourly rate. Your attorney will forward a copy to you for your review at least 7 days before it is filed with the Bankruptcy Court.

The purpose of the Fee Application is to allow the US Trustee, the Chapter 13 Trustee, and other interested parties the opportunity to determine whether your bankruptcy attorney is charging fees that are reasonable.

The Trustee or creditors may object to the Fee Application once it is filed, but, once it is approved by the court, those fees are granted to your attorney and the Chapter 13 Trustee will disburse money in payment of those fees to your attorney out of your monthly Plan payments until the application is paid in full.

The first Fee Application filed in a Chapter 13 case (presuming the case is not dismissed prior to Confirmation) is filed by your attorney within 30 days of the Confirmation of your case.

Additional (usually smaller) Fee Applications are filed throughout your case, as your attorney invests further time and expenses into your case. A final Fee Application is usually filed as your Chapter 13 matter nears final completion and issuance of your Discharge.

Chapter 13 Attorney Fees: The “No-Look” Fee

There is an exception to the requirement that Chapter 13 bankruptcy attorneys file a Fee Application in order to be paid.

This is an exception is called the “No-Look Fee.”

It represents a recognition by the Bankruptcy Court that a certain total fee requested by a bankruptcy attorney upon Confirmation of the Chapter 13 Plan by the court is presumptively reasonable and that the detail of what tasks were performed at what hourly rate by the attorney need not be examined.

Currently, in the Eastern District of Michigan where The Law Offices of Walter Metzen & Associates is headquartered, the “No-Look Fee” is $3,500.00.

Thus, if your attorney’s fees and costs at the time of Confirmation of your Chapter 13 Plan are $3,500.00 or less in total, your attorney will not be required to file a Fee Application at all.

The “Order Confirming [your Chapter 13] Plan” that your Bankruptcy Judge signs to confirm your plan will simply include a sentence that states that fees and costs in the amount of $3,500.00 are awarded to Debtor’s Counsel.

However, this does not mean that your attorney will not file those further, post-confirmation Fee Applications described above.

As noted, the work your attorney puts into your case does not end at Confirmation: you will be working together for at least 3 years past that point.

Chapter 13 Attorney Fees in Michigan: The Bottom Line

The bottom line with regard to Chapter 13 bankruptcy attorney fees is that you should not mistake the “No-Look” Fee for a “Flat Fee” as is typically charged in a Chapter 7 bankruptcy.

The No-Look Fee only accounts for work performed by your Michigan bankruptcy attorney from the date you retained the attorney to the date of Confirmation of your Chapter 13 Plan. Although the lion’s share of work that you will mutually do in your case happens (normally) between filing and Confirmation, it is not the end of the work involved.

Further, some clients in Chapter 13 proceedings end up requiring—for whatever reason—quite a lot of post-Confirmation work to be done. They change jobs, they move, they miss Chapter 13 Plan payments, they fail to turn over tax returns to the Trustee as is required, etc.

Whatever happens after Confirmation, it is your attorney’s job to fix the problems and try get you to a successful Discharge at the end of the Chapter 13 process. This additional post-Confirmation work will be done at an hourly rate.  It is tempting to hear that a Chapter 13 case will cost a flat fee of $3,500 at the front end, and then believe that the $3,500 buys you all the work that would ever be required during the case.  Although occasionally a Chapter 13 plan runs to completion without any problems or attention needed, in the vast majority of cases, the plan requires monitoring and adjustments during it’s 36 to 60 month period.  These cases are complex, they are often contentious, and they require a very high level of education and experience to create and maintain.  You hire an attorney, and more than that, a bankruptcy specialist, because we have the experience and ability to help you get the greatest possible benefit out of your case.  This is the point where I say something cliche like, “you wouldn’t ask someone who wasn’t a surgeon to remove your appendix.”  It’s cliche, but it is true.  Lawyers only have one thing to sell, their ability to use the law to change other people’s circumstances.

If the work performed post-Confirmation turns out to be more than was expected at the time your Plan was drafted, sometimes years earlier, it is possible your monthly Plan payment will need to be increased in order to accommodate the later Fee Applications.

This happens.

Neither you nor your attorney want to have that conversation, but it is a fact of life in Chapter 13 matters that things go wrong and must be addressed.

You can help your attorney to keep costs low by fulfilling your court-ordered obligations to make Plan payments in the right amount and on time, to turn over tax returns and refunds as required, and so on, without requiring your attorney to chase you down and constantly re-remind you of end of the work required.

You can help your attorney keep costs low by communicating proactively with him or her when things are changing in your life, for better or for worse. Don’t just skip Plan payments and then tell your attorney that you lost your job only when the Trustee files a Motion to Dismiss your case.

Be a partner in the process. The work your attorney does for which further and final post-Confirmation Fee Applications will be filed is necessary for the successful completion of your Plan.

But also be aware that, unless your attorney is working on some sort of legal aid or pro bono basis, regardless of what you paid in retainer up-front when you hired the attorney and regardless of whether your pre-Confirmation legal fees were paid by the Trustee as a No-Look fee or pursuant to a Fee Application, you are paying hourly through the Chapter 13 Plan post-confirmation.

You almost never (regardless of which Michigan bankruptcy attorney you retain) are receiving 3-to-5 years’ worth of legal service for a low flat-fee.

Contact The Law Offices of Walter Metzen & Associates now to schedule a no-cost, no-obligation initial consultation.

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