You Can Discharge Attorney Fees in Bankruptcy
Debt to an attorney for attorney fees owed is not any different than any other sort of "unsecured" debt, such as a credit card or medical bill. Unsecured debts, by and large and with a few exceptions, are completely dischargeable in a Chapter 7 bankruptcy and dischargeable to the extent that they haven't been paid through a Chapter 13 bankruptcy. There is nothing sacred about attorneys' fees in bankruptcy, whether arising from divorce, a collections or other lawsuit judgment, or even your own bankruptcy attorney. But there are exceptions.
When Can't You Discharge Attorney Fees in Bankruptcy?
There are situations in which a debt to an attorney is either not an unsecured debt, or it is non-dischargeable in bankruptcy because the attorney fees are connected with or arose from the circumstances arising a separate debt that is non-dischargeable.
Attorney Fees as a Secured Debt
Occasionally, an attorney fee debt is not an unsecured debt because the attorney to whom the fees are owed has filed a lien securing the debt on real estate owned by the client. This does not mean that the underlying debt is not dischargeable, but it does mean that, unless the lien can be avoided or stripped in the bankruptcy, the lien itself will survive the bankruptcy as an encumbrance upon the real estate. This has been a common practice of divorce attorneys in Michigan for years, at least until recently, when the State Bar of Michigan issued an ethics opinion forbidding divorce attorneys from placing attorneys' liens on marital real estate that is the subject of the divorce proceeding. In 2012, a Wayne County Circuit Court opinion also found this practice to be improper. Nevertheless, some older divorce or other attorney retainer agreements may so provide for such a lien, and such a lien may have been filed with the county register in for the county in which the real estate stands prior to the filing of a bankruptcy. If such a lien is present in a prospective bankruptcy case, potential filing consumers will want to discuss a lien strip, avoidance, or cramdown with their bankruptcy attorney depending upon the individual circumstances of the individual property in question. Otherwise, if the home is later sold, the lien-holding attorney will need to be paid from the proceeds, or, if not sold, will then have a practical ability to foreclose on the home for some benefit to the attorney.
Attorney Fees as Spousal Support
An attorney fee can be outright non-dischargeable if the work done by the attorney is, as mentioned above, in some way implicates a non-dischargeable debt. For example, a divorce attorney's fees may be required to be paid by one of two divorcing spouses as a type of spousal support by order of a divorce judgment. Court-ordered spousal or child-support is generally not dischargeable in a Chapter 7 bankruptcy (although it can sometimes be in a Chapter 13).
Attorney Fees as a Breach of Fiduciary Duty or Intentional Tort or Other Claim
Another example would be if the attorney fees was incurred by way of defense in a breach of fiduciary duty claim or an intentional tort lawsuit or even a criminal action. Not all such fees would be non-dischargeable, but the possibility exists.
Discharge Attorney Fees in Bankruptcy: The Bottom Line & Bankruptcy Fees
An experienced bankruptcy attorney will be able to help you explore your options for truly freeing yourself from such debt obligations. A final thought concerns the fees charged by bankruptcy attorneys themselves. A large number of bankruptcy attorneys in southeast Michigan claim to offer "payment plans" in which the last or final payments are required to be made after a Chapter 7 bankruptcy petition has been filed. These fee agreements are under heavy scrutiny by the Bankruptcy Court and the US Trustee's Office (the division of the US Department of Justice overseeing the bankruptcy process), as the filing of a Chapter discharges all obligations under the retainer agreement signed prior to filing. Attorneys engaged in this practice who suggest, demand, or imply that clients must pay post-filing fees of this sort are violating Federal law if they do not tread very carefully with their retainer agreements and their practices. At best, such arrangements are likely to leave clients at least partially in the dark as to the overall cost of their bankruptcy process. The Hilla Law Firm, PLLC offers all Chapter 7 clients an easy-to-understand, up-front flat fee that results in no "back-end" billing or surprise invoices. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
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