Attorney fees can, and should, be included in any bankruptcy filing. The larger question is whether attorney fees can be discharged in a bankruptcy proceeding. The answer to that question is generally yes. In this article, we will explore what to look out for if you're trying to discharge attorney fees.
Written by Attorney Eva Bacevice.
Updated July 22, 2020
Attorney fees can, and should, be included in any bankruptcy filing. The larger question is whether attorney fees can be discharged in a bankruptcy proceeding. The answer to that question is generally yes. Attorney fees are usually treated the same as any other unsecured debt, meaning in most cases you can walk away from that debt at the end of your bankruptcy. In this article, we will explore why this is the case, and what exceptions you should be aware of.
Listing the debt
First, it is important to know that you should always list all debts in your bankruptcy forms as required by the Bankruptcy Code. By signing these documents under penalty of perjury you’re essentially certifying you have included all of your financial information, which includes complete disclosure of all of your debts. This information should include any debts incurred up until your filing date, so if you’re currently pursuing any other legal action, that does need to be disclosed. You don’t want to conceal or omit any debts for any reason because it is a federal crime to do so, punishable by fines and up to five years in prison.
Dischargeability of attorney fees generally
For the most part, any debt you owe to an attorney is treated the same your other unsecured debt, just like your credit cards or your medical bills in bankruptcy. This means that in Chapter 7 you can walk away from prior attorney fees after receiving your order of discharge. In Chapter 13 you can include attorney fees in your case as well, and they will receive the same percentage of the balance they’re owed as the other unsecured creditors do through your Chapter 13 plan. In Chapter 13 you can walk away from any remaining debt to unsecured creditors at the conclusion of your case. This applies to almost all attorney fees, with a few exceptions.
Attorney fees for a bankruptcy attorney
Attorney fees for your bankruptcy attorney aren’t treated any differently in Chapter 7. This is why most bankruptcy attorneys require their clients pay them in full before filing their Chapter 7. Otherwise, they risk having their fees discharged along with the rest of the client’s unsecured debts. In Chapter 13, however, a part of your attorney fees is paid through your Chapter 13 plan, so you don’t need to come up with all the money upfront. This is an important aspect of Chapter 13 bankruptcy which as a rule comes with higher attorney fees than Chapter 7.
Attorney fees from a divorce proceeding
Attorney fees from a divorce proceeding can be a little trickier to deal with. The Bankruptcy Code states that certain debts are non-dischargeable in bankruptcy. Both alimony and child support are included in this list of exceptions and will not be discharged in bankruptcy. Attorney fees for obtaining alimony and/or child support have been held non-dischargeable as well for that reason. Attorney fees for all other aspects of divorce, like a property settlement, are still treated as unsecured, and therefore dischargeable.
Additionally, if attorney fees were incurred in the defense of something that is already non-dischargeable, such as a breach of fiduciary duty, an intentional tort or a criminal action, those fees may also be considered to be non-dischargeable.
Attorney fees secured by a lien
Finally, attorney fees might survive a bankruptcy filing as a result of being a particular type of debt. Some attorneys might have a provision in their fee agreement that allows them to place a lien on your property to secure the debt. If that is the case, suddenly what would have been unsecured debt you can walk away from in Chapter 7 is now secured debt and not as simple. If you find yourself in this scenario you should consult with a bankruptcy attorney about your best next steps. There are some legal mechanisms to remove the security interest, including a lien strip, cramdown or avoidance action that you should look into before filing your bankruptcy case, so you’ll know how to handle it before the case is even filed. The best method to pursue will depend on your personal circumstances as well as the type of property securing the debt.
The vast majority of attorney fees incurred before filing bankruptcy will be treated as unsecured debt and eliminated in any consumer bankruptcy case. Unless your circumstances fit into one of the exceptions discussed above, filing for bankruptcy will relieve you of any obligation to pay attorney fees the same as any other debt. Your prior (or current) attorney will receive notice of your bankruptcy case once it is filed. They can file an objection to having their debts included/discharged, but unless they fit into one of the discussed exceptions, the bankruptcy court will deny their request and find the attorney fees to be dischargeable.