What’s the Legal Fee for Chapter 13 in Virginia?
People ask all the time, what’s the legal fee for Chapter 13?
That should be easy, but it’s tough. Here’s my attempt at a straight answer.
The fee I charge you in chapter 13 is set in two ways. By agreement between you and me, and by order of Bankruptcy Judge. (The Judges here have a general policy they established on August 1, 2014.)
The Judges here, in the Eastern District of Virginia, say I can charge you up to $5000 without asking the Judge for permission. (That’s $5000 plus the $310 filing fee.) More that that, I may need permission. Or I may need special permission.
No, you don’t need $5310 up front!
Much as I’d like to get it all up front, I have some flexibility. Unless you are really, really poor, I’m going to ask for at least $1810 up front. That’s the $310 filing fee; and $1500 toward my $5000.
That leaves $3500. That $3500 gets added to the payment you have to make to the bankruptcy trustee: $97 a month in a three year Chapter 13; $58 in a five year Chapter 13. (Most Chapter 13’s around here are for five years.) You can see I’m not in love with that. Once your Chapter 13 case is filled, I’m not allowed to charge you directly.
So, is the fee always $5000? No, sometimes it can be less and sometime it can be more.
In a really simple case, I will reduce my fee below the $5000. If I think your case is going to be extra hard, it will be hourly, instead, with no cap.
Flat Fee cases and Hourly cases
If you and I decide we have an hourly case, then for whatever I charge, I have to ask permission.
If we agree on a flat fee case, I can only charge more if I ask for special permission.
The things that would cause me to ask for permission or special permission, you can think of as overtime.
What Causes Chapter 13 Legal Fees to go into Overtime?
Projected Disposable Income
Unless you are paying all your debts in full, your Chapter 13 plan is supposed to pay all you can afford. The legal term for all you can afford is your “projected disposable income.”
There’s a formula in the law on how to calculate your projected disposable income. And Congress said they were using that formula so everything would be really clear. Well, application of the formula is not always really clear.
If you have custody of three kids, except for weekends and the summer, are you a family of four? Or three? Or two and a half?
If you got your first ever bonus last month, do we have to pay that amount to the court every year: even if you never get a bonus again?
The possibilities are endless.
Unless we agree to pay whatever the Trustee says he wants, we can sometimes get into overtime in the first few months of your case. If I expect your case will get into overtime the front end about projected disposable income, I’ll start your case as an hourly case. I’ll need permission from the judge for what I charge you, but I won’t need “special permission.”
Modification–Probably a Flat Fee Case with Special Permission
The 2005 bankruptcy law says you can be required to send your tax forms every year to the Chapter 13 trustee. It does NOT say what he is supposed to do with them.
Our Chapter 13 trustee knows what he thinks he’s supposed to do. He’s supposed to see if you’ve gotten a “substantial” raise–and if you have, he’s supposed to take (some of? most of? all of?) it from you. Even though that’s not written in the law anywhere, the Judges here seem to agree.
So the Chapter 13 Trustee proposes a modification. Since it’s nowhere in the law that the trustee is supposed to take more money from you, it’s even more nowhere how much he’s supposed to take. So you and I battle the Trustee in front of the Judge in a contest with no rules.
If we start our case as a flat fee case, and then the trustee asks for a modification, I’m going to charge more. My charge will be at my hourly rates. And I’m going to ask that the “more” I charge will be paid by the trustee from the money you were already paying your debts. This is covered by the “special permission” rule.
Lost Income–I’ll ask for special permission (and you’ll probably have to pay)
If there’s an interruption in your income, you and I are allowed to propose a modification.
And the trustee will agree–as long as we proposes to skip a few months–and then make it ALL up. If you can’t make it all up, then he’ll fight us. Another battle with no rules.
I’ll ask for special permission. If we win, the judge will probably say YOU need to pay my overtime hours when the chapter 13 case is over.
Fights with Your Mortgage Company–the Judge is gonna say that’s your fault
Five years is a long time, and when an emergency comes up, it’s easy (not smart, but easy) to miss a payment or two on your mortgage. When that happens, your mortgage company will file a “motion for relief from the automatic stay.” In other words, they want permission from the Judge to foreclose you.
Obviously, that’s scary
While they are asking for permission to foreclose, what they really want is an agreement to catch up. That sounds easy, but here’s the problem. We can’t work out an agreement to catch up until we agree how much you are behind.
That agreement can be hard to come by. First, they want to tack on their lawyer fees. That can be a lot. Second they almost always say you are much further behind than you think you are. And when we ask for proof, we get a computer print out that’s impossible to make any sense of.
In 2013, we ran up nearly seven thousand dollars in overtime in that kind of fight. The bank said Darren was six months behind; Darren said it was one month–and caught it up. FINALLY everybody agreed is had been two months. Counting their lawyer plus us, the legal fees were more than the four months of payments we were fighting over.
That can happen.
I’ll ask for special permission; and the judge will probably tell you that you have to add my hours to what your payment is.
Your Tax Forms
I told you the 2005 law says your Chapter 13 trustee can ask for your tax forms every year. Our trustee asks for them. And you gotta send them in.
I shouldn’t have to remind people more than once, but sometimes we do. On July 21, this year, the Judge is going to throw out of Chapter 13 everybody who hasn’t yet send in their tax forms. Unless you have a really good excuse. “I asked for an extension” is NOT an excuse. “I was hit by a beer truck and was three months in intensive care”–that’s an excuse.
I still have four people who have not sent in their tax forms–and none of them have the “beer truck” excuse that will save them. We are now calling and emailing every other day to make that clear. That’s overtime.
If we are on a flat fee, the judge probalby will NOT give me special permission to charge for that. He’ll say its my fault that you didn’t know to send in your taxes. If you are on a hourly fee, then you will end up paying for all the time we spend reminding you to send in your taxes.
How is Overtime Calculated?
To apply for overtime, I have to submit a request to the Bankruptcy Judge. The Judge approves the time we spent, and the rate we charge.
I bill $400 an hour for my time. That’s what the Judges here approve for bankruptcy lawyers with more than twenty years bankruptcy experience. I’m a bankruptcy lawyer with more than twenty years experience.
For my younger lawyers who work for me, $275.
Lori Rupp, my Chapter 13 specialist paralegal, $200.
Other bankruptcy paralegals, $175.
(My paralegal rates are a little higher that what other lawyers ask for. The Judges approve them, I think, because our total hours run low. We’re efficient.)
Who Pays and How?
If we agree on a $5000 flat fee, whatever I don’t get up front is built into the original payment plan we submit to the court.
When we get into a fight with the mortgage company, that usually gets tacked on to what you have to pay. Even if you were only two months behind and they said it was six, the cost of figuring that out end up being paid by you. (Don’t get behind!) I’ll need special permission, but you’ll end up paying it.
If there’s a modification raising your payment–we try to get paid out of that increase. Suppose the trustee wants to increase your payment by $1000 a month. (OMG!) And we can get it down to $200. If my overtime fee is $2000, we try to get that paid out of the extra two hundred, rather than added on top.
Most Chapter 13 plans around here last five years–and five years is a long time. Things come up. Some of those things will require additional legal work–overtime–and a lot of that overtime for Chapter 13 will end up getting paid by you.
Sorry. That’s how that works.
PS Here are my two fee agreements. At the inception of your case, we’ll agree on one or the other.
Here are the disclosures I have to file with the bankruptcy court.
PS The Fourth Circuit–the big judges between us in Virginia and the Supreme Court–say there are twelve factors to consider in setting legal fees.
The Johnson factors are as follows: (1) time and labor required, (2) novelty and difficulty of
the issues, (3) skill required to perform the legal services properly, (4) preclusion of other
employment, (5) customary fee, (6) whether the fee is fixed of contingent, (7) time limitations
imposed by the client or the circumstances, (8) amount involved and results obtained, (9)
experience, reputation and ability of the attorneys, (10) undesirability of the case, (11) nature and
length of the professional relationship with the client, and (12) awards in similar cases. Johnson,
488 F.2d at 717–19.