Can I Pay My Bankruptcy Lawyer in Installments?
Whether you can make payments to your bankruptcy lawyer over time depends on whether you file for Chapter 7 or Chapter 13 and the policy of your bankruptcy court.
If you cannot pay your bankruptcy attorney's fees all at once, you may be able to make the payments in installments. Paying bankruptcy lawyer fees in installments is always possible in a Chapter 13 case. In Chapter 7 bankruptcy, you often can pay your lawyer's fees in installments, but not always -- it depends on whether your local bankruptcy court approves of the practice.
Lawyer Fees v. Court Costs
When you hire an attorney to represent you in bankruptcy, you must pay both the lawyer's fees and the fees to file your bankruptcy in court. In many cases, you can pay the court filing fees in installments. (To learn more, see Application to Pay Filing Fee in Installments.)
Paying Lawyer Fees in Installments in Chapter 13 Bankruptcy
In a Chapter 13 case, it is common practice for an attorney to take at least a part of her fee through your Chapter 13 plan payments.
In Chapter 13 bankruptcy, you manage and reorganize your debts through a payment plan that lasts from three to five years. Some people use it to catch up on past due mortgage payments or restructure their car loans. Others take advantage of Chapter 13 if their income is too high to qualify for a Chapter 7 case. Chapter 13 cases are more labor intensive for the attorney than a Chapter 7, and the fee an attorney charges for Chapter 13 often reflects the need for a long term attorney/client relationship. (Learn about average attorney's fees in Chapter 13.)
When you pay your bankruptcy attorney's fees through the Chapter 13 plan, most of the plan payments you make at the beginning of a Chapter 13 case will go toward paying those fees. After the attorney fees are paid in full, the Chapter 13 trustee will begin distributing your monthly payments among your other creditors.
Using Chapter 13 to Pay Attorney Fees, Then Converting to Chapter 7
Even you qualify to file for Chapter 7 bankruptcy, some attorneys will file the case as a Chapter 13 so that you can pay your lawyer's fees over time through the Chapter 13 plan. After you have paid the fee in full through your plan payments, the attorney converts your case to Chapter 7. (See Converting Your Bankruptcy Case From Chapter 13 to Chapter 7.)
Not allowed in some courts. Some courts frown on this practice, because it causes extra work for the court. And some courts don't allow these "fee-only" Chapter 13 cases in the first place. (See Should I File for Chapter 13 if I Can't Afford a Chapter 7 Lawyer?) Therefore, whether this option is available to you depends on the policy in your bankruptcy court.
Disadvantages of this method. Attorneys who employ this tactic usually charge more than a standard fee for a Chapter 7 case because of the extra work involved. In addition, approximately 10% of each payment will go to the Chapter 13 trustee as a fee. (Learn more about the bankruptcy trustee fee.) You will also have to attend a meeting of creditors for both the Chapter 13 case and for the converted Chapter 7 case.
Paying Attorney Fees in Installments in Chapter 7
Many bankruptcy attorneys will allow you to set up an installment plan to pay the lawyer fees for a Chapter 7 bankruptcy, but they will not file your case until you have paid your fee in full. This is because any money you owe your attorney on the day you file your case is a debt that will be discharged in the bankruptcy. If you owe your attorney any part of her fee on the day you file your case, you can pay it voluntarily after the case is filed, but she cannot take any steps to collect it from you. (Read about options if you cannot afford a Chapter 7 bankruptcy lawyer.)
Split Retention Agreements (Unbundling Services) in Chapter 7
To avoid the issue of dischargeable fees, attorneys in some jurisdictions will offer their clients the option of a split retention agreement. In this arrangement, sometimes referred to as “unbundling” services, you hire and pay the attorney to prepare and file your case only. After the case is filed, you hire the attorney using a separate agreement to represent you for the duration of the bankruptcy case. The attorney will set up a payment plan that will allow you to pay the remainder of her fee over time -- usually four to six months. Generally, attorneys charge more for this type of installment plan.
Under this arrangement, you are under no obligation to hire the attorney for the post-petition part of the case. Instead, you could choose to attend the meeting of creditors, negotiate reaffirmation agreements, work with the trustee, and handle all other issues in the case without the assistance of an attorney. Most debtors, however, are unwilling to go it alone and will hire the attorney for the second half of the case.
Whether a split retention arrangement is available to you depends in large part on the jurisdiction in which you file your case. Traditionally, courts were not willing to allow these agreements, fearing that debtors would forego representation after the case was filed and fall victim to the many pitfalls that can plague a bankruptcy case. Some courts now allow split retention as long as the client thoroughly understands the consequences of the contract.