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One Consumer Bankruptcy System, or Many?

posted by Lois R. Lupica

As Principal Investigator of the Consumer Bankruptcy Fee Study, I've been gathering "qualitative data" from attorneys, trustees and judges about how the consumer bankruptcy system is working. I have conducted over a dozen focus groups, many, many one-on-one interviews, and have been privy to myriad list-serve threads discussing the costs of BAPCPA generally and more specifically, consumer bankruptcy attorney fees.

Here is one preliminary observation: there is a huge disparity with respect to how and how much attorneys are paid, depending upon where in the country they practice. This is not a shocking revelation on its face, given the disparities in the cost of living from city to city. The data reveal, however, variations that go beyond big city=expensive, small town=cheap.

For example, with respect to Chapter 13 practice, there are significant variations from state to state, district to district, court to court, and even judge to judge. Some jurisdictions have what are known as "presumptive" or "no-look" fees (the fee below which no questions will be asked, and no challenge will be made). In other jurisdictions, there is no presumptive fee at all: an attorney is paid by the hour, upon submission and approval of a fee application. 

In some jurisdictions, lawyers have quite a bit of input into the process of setting no-look fees. One attorney described the following:

[T]he judges get together with small filers, medium filers, and large filers and trustees and say, "Hey, what you guys need to do is let me know what you need to charge.  Give me a figure, kind of roughly an average case.  What we're going to do is put that as an average figure, which is $3,250.  Now you can go with that if you want. and that's $3,250 at confirmation.  Keep track of your time afterwards and do supplemental fees. Or you can just do it hourly, right from the start. We'll just pay you hourly, or you can do $4,500 for the life of the case."

In other jurisdictions, however, no-look fees are set without local attorney input as to the amount; in these cases, the fee is set unilaterally by a judge, the court, or in consultation with the local standing trustee.

In some instances, the no-look fee acts as an absolute cap on the total amount an attorney may charge a consumer client, no matter what happens in a case. In the jurisdictions that have set no-look fees, they range from a low of $1,500 to a high of $5,000.

In many jurisdictions, it was no simple matter to discover what the no-look fee is (and what the historical, pre-BAPCPA no-look fee was). In some places, the no-look fees are codified in a local rule, included in a general order, standing order, administrative order or a memorandum. In yet other jurisdictions, the no-look fee is simply a matter of court policy, an unwritten practice, or a guideline.

How much it costs a consumer debtor to file for bankruptcy under Chapter 13 and how much a lawyer gets paid, depends in large part on where consumers file and where a lawyer practices.


I completely agree with Lois that it is not the amount of variation, but rather where and how it varies, that is the less known fact about attorneys fees. Several years ago when I did a study on rural bankruptcies, Going Broke the Hard Way: The Economics of Rural Failure, 2005 WISC. L. REV. 969, one of the findings that I did not have room to report was that people in rural counties paid more for bankruptcy than people in urban counties. The study was confined to Iowa and Tennessee. So not only is there substantial variation by state and judicial district as Lois identifies but also by place of residence on a finer-grained level as well.

Chapter 13 has more local variation than any of the other chapters.

One reason is that there is rarely enough money involved for many common issues to be litigated up the line.

Another reason is that denial of confirmation is not a final appealable order - so, you have to either have your case confirmed with a different plan (that the debtor objects to) or the case has to be dismissed, for an appeal to be possible.

The third reason is that Chapter 13 plans involve difficult decisions on what individuals will be allowed to spend on personal and business expenses. Some judges are uncomfortable telling people what they can (and cannot) spend on private schooling, groceries, cell phones, money losing investment properties, etc. These are hard issues, and judges draw different lines, even with the "objective" Means Test.

We have a no-look fee here in Massachusetts under local rule, but there is still considerable variation among bankruptcy attorneys and quite a bit of comparison shopping going on among consumers.

I'm looking forward to reading the final report. It will be interesting to see how it treats the enormous variety in terms of complexity that exists in the universe of Chapter 13 cases.

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