Low income debtors often need to file bankruptcy to stop garnishments, car repossessions and foreclosures. The problem is, filing Chapter 7 bankruptcy is expensive and attorneys will not file a case until ALL those fees (typically $1,400 to $1,800) are paid.

Why won’t attorneys file cases for a small retainer and monthly payments on the balance? Because court rules prohibit attorneys from doing that.  It’s ironic, but the very laws that are designed to help low income debtors actually impose a roadblock to hiring professional help.

When a bankruptcy case is filed, all debt collection must stop, including fees owed to the attorney. Chapter 7 attorneys cannot accept additional payments once a completed petition is filed.


One solution is to file an incomplete petition.  Under bifurcation the attorney files a skeletal petition consisting of nothing more than a debtor’s name and a list of creditors.  After the case is filed the debtor signs a new fee agreement to cover the work that needs to be completed (drafting asset and debt schedules, income and expense schedules, attending court hearings, etc.).

Since the bulk of the legal work is performed after the case is filed the attorney is allowed to accept monthly payments.  Hence, the process has been divided between pre-petition and post-petition services.

Is this allowed? Can an attorney divide their fees between pre-petition and post-petition services?


The Idaho bankruptcy court was one of the first to rule on bifurcated fee arrangements in the case of In re Grimmett.  In that case the debtor’s attorney used a factoring company called BK Billing based in Utah.  The attorney charged the debtor $500 to file a skeletal petition and then another $1,500 payable in monthly installments for work completed after the case was filed.  The attorney sold his fee contract to BK Billing and received $1,000 immediately.  To summarize this arrangement, the debtor paid $2,000 to file a case ($500 down and $1,500 in monthly installments), the attorney received $1,500, and BK Billing received $500 plus interest.

The Idaho court pointed out several problems:

  • The agreement provided that if the debtor failed to make timely payments the schedules would not be filed and court fees would not be paid resulting in a dismissal of the case.  In short, the attorney threatened not to complete his job when payments were late.
  • The agreement provided that the attorney would stop working on the case even if the attorney did not receive court permission to withdraw.
  • The court was concerned about whether debtors were giving “informed consent.”  That is, did the client really understand what they were signing?
  • The attorney threatened to send the unpaid account to collection.
  • Until an attorney is allowed by the court to withdraw from a case, the attorney must be prepared to assist the debtor through normal, ordinary and fundamental aspects of the process.  These core duties would include completion of the bankruptcy schedules, attending the meeting of creditors, and assisting the debtor with normal tasks involved with reaffirmation agreements, filing credit education certificates, etc. An attorney cannot contract away core and fundamental duties.
  • It is doubtful that a debtor can appreciate or understand the adverse consequences that may befall him or her when the attorney abandons the case midway through.
  • There is great suspicion by the court and US Trustee that this is an effort to allocate charges of pre-petition work to post-petition fees. In other words, the US Trustee suspects the arrangement is a scam and most of the work is really done prior to filing the case.

If either lawyer or client wishes to limit services in order to preserve a lower fee, that limitation must be carefully considered and narrowly crafted, and be the result of educated and informed consent.

Several cases have been brought against bankruptcy attorneys in various bankruptcy courts when they sell their unpaid accounts to BK Billing.


In 2019 the Utah bankruptcy court issued a ruling approving the use of bifurcated fees in Chapter 7.  (See In re In re Haszelett).

In May of 2016 Brett Hazlett met with the attorneys of Lincoln Law to file bankruptcy but could not afford to pay a $1,200 retainer fee.  Later that year creditors obtained judgments against Hazlett but he was again informed that no case could be filed until he fully paid the retainer fee.

Hazlett then met with attorneys of the Capstone law firm and entered into a bifurcated chapter 7 agreement to pay Capstone $2,400 payable in 10 payments of $240 after the case was filed.  Hazlett completed his bankruptcy case and received a discharge of his debts.

About a year later an attorney from Lincoln Law contacted the debtor about why he had not filed bankruptcy with  his firm. When the debtor informed the attorney about the zero-down payment system offered by Capstone, Lincoln Law filed a complaint with the Utah bankruptcy court to disgorge fees and impose sanctions.

In contract to the Idaho court, the Utah bankruptcy court found nothing wrong with the BK Billing arrangement and offered the following observations about the BK Billing program:

  • The bifurcation documents included a multitude of disclosures, explanations, and warnings regarding the fee arrangement, the bankruptcy process, the possible use of BK Billing as a third party to collect payments, and the importance of providing true, complete, and accurate information .
  • The Instructions contain almost fifty paragraphs of disclosures and explanations that the Debtor was required to read and initial.
  • The attorney’s fees did not arise under the prepetition agreement as alleged by Debtor. Rather, they arose under a post-petition agreement, which is not governed by § 362 because the “claim”—or right to payment—does not arise “before the commencement of the case under this title.
  • Lincoln Law has repeatedly failed to demonstrate how the Debtor was actually harmed in any way by Capstone Law.
  • After careful scrutiny, this Court determined that all the charges were reasonable, and that the outcome of the bankruptcy case was completely satisfactory as to the Debtor.
  • The Debtor is an adult who, based on his inability to pay an up-front retainer, made an informed business decision to enter into a post-petition agreement.

Wow, two different courts reviewing the same BK Billing contract reach completely opposite conclusions. It appears that the key difference in these cases is how the different attorneys acted towards their client.   The Idaho attorney was basically a threatening jerk to his client while the Utah attorney completed his client’s case resulting in a discharge of the debts.

So is completing the case and obtaining a discharge the key to allowing bifurcated agreements? If the Idaho attorney had simply promised to complete the job regardless of whether the client was current on payments, would the result be different?  That seems to be the great concern of the Idaho court–that “core and fundamental duties” be fulfilled and that clients not be abandoned.

Indeed, if attorneys can promise that core and fundamental duties will be honored and that clients give informed consent, there is no reason for courts or the US Trustee to condemn bifurcated fee agreements. As the Utah court asked, how is a debtor harmed, especially when a debtor is unable to pay a retainer fee and is facing garnishments?

Even the American Bankruptcy Institute’s Commission on Consumer Bankruptcy has recommended that Chapter 7 bankruptcy fees be excepted from discharge so that attorneys may offer payment plans similar to the BK Billing program.

Honoring core and fundamental duties.  Informed consent. These are the building blocks of a successful bifurcation fee arrangement.


Image courtesy of Flickr and Juhan Sonin