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Attorneys' Fees Will Increase Under the Reform Act

The consensus among consumer bankruptcy professionals is quite clear that debtor's attorneys will have to do a lot more work, and will have to charge a lot more in fees, for handling cases under the Reform Act.

Attached is a poll conducted by the American Bankruptcy Institute. The question was, what affect will the Reform Act have on fees? [Reprinted with permission from the American Bankruptcy Institute - http://www.abiworld.org/

Only 4% said it will have no significant effect. Fully 57% agree that fees will double or more. The single largest opinion is 38% who believe fees will at least double.

The effect on fees is left to the imagination:

Additional Time Required by the reform act for Chapter 7 Cases:

  1. Examination of the nature of a client's debts to determine whether or not the means test must be applied (the means test does not apply to clients whose debts are primarily non-consumer debt such as taxes, business debts, and tort claims). Add 20 minutes to interview.
  2. For those whose incomes are primarily consumer debts, studying the income to determine whether it is above or below the state median income level. Add 20 minutes to an hour;
  3. Greater attention to the debtor's expenses to assure reasonable compliance with the IRS expense standards and debt guidelines prescribed by Code 707(b) required by the Act. Add 30 minutes to an hour.
  4. Do the math for the means test. Add 30 minutes to 2.5 hours, depending on whether it is done with software, or done manually.
  5. Determine to what extent the client is entitled to claim the state exemptions. Add 20 minutes to an hour.
  6. Explain the need for credit counseling. Add 15 minutes.
  7. Follow up with client's credit counseling. Add 15 minutes.
  8. Greater attention to creditor addresses because of new notice requirements. Add 20 to 45 minutes.
  9. Greater attention to verifying the debtor's income and expenses. Add 30 minutes to 1 hour;
  10. More time expended in explaining the differences between chapter 7 and chapter 13, the alternatives to bankruptcy, and the costs and benefits of bankruptcy to the client. Add 45 minutes.
  11. Follow up on reaffirmation or redemption requirements. Add 30 minutes.
  12. Additional due diligence to verify or corroborate information supplied by the client, due to greater accountability the Act places on attorneys for reasonable inquiry and verification of facts. Add 30 minutes to 2.00 hours.
  13. Explain the need for the financial management course. Add 10 minutes.
  14. Miscellaneous additional tasks, follow-up, and paperwork, new required disclosures, and calendaring 23 postpetition deadlines or tasks; Add 45 minutes.
  15. Time preparing various certifications and attorney's declarations that must be filed, add 20 minutes.

TOTAL ADDITIONAL TIME: 6.33 hours (minimum estimate). At the national average hourly rate of approximately $200/hr, this is an additional $1,266 in fees for an AVERAGE NO-PROBLEM CHAPTER 7 case. In areas of higher cost-of-living and therefore higher hourly rates, an hourly rate of $250 is not uncommon and would add approximately $1,582 for a typical problem-free case.

Used with permission from Morgan D. King, Editor.
King Bankruptcy Media 2004

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