It’s tough to file for personal bankruptcy when you’re flat broke.
That’s why a number of South Florida bankruptcy law firms are offering clients “no-money-down” or “low-money-down” plans to help ease their long trip back to financial health when they file for Chapter 7 under the U.S. Bankruptcy Code. The provision allows people to wipe the slate clean of mounting credit card and similar debts.
The fee arrangements, which involve two separate payment agreements between the lawyers and their clients, could become critical this year for troubled consumers who are burdened with household debts accumulated during the COVID-19 crisis. It could be the difference between getting help in the courts, or not.
“The problem we were having is we had clients come to us and their wages are being garnished, their assets are being frozen and every paycheck that goes by they’re losing it to a creditor,” said Fort Lauderdale attorney Chad Van Horn of the Van Horn Law Group. “Some people are broke-broke. They really don’t have the money.”
Another firm — Semrad Law Firm in Miami — has a subsidiary called DebtStoppers whose TV commercials tell hard-pressed consumers they can get their Chapter 7 bankruptcy cases started without paying anything in advance.
But earlier this year, the U.S. Trustee for the Southern District of Florida, whose role is to ensure compliance with bankruptcy court rules and procedures, complained to the chief judge that both firms had stepped out of bounds with their fee agreements and payment options for clients.
Among other things, the trustee objected to the firms’ use of so-called “bifurcated” fee agreements with clients — one signed before a bankruptcy petition is filed with the court, the other for services performed by the lawyers afterward. One concern was that the law firms were charging too much money for legal work after a case was filed.
In a motion to Chief Bankruptcy Judge Laurel M. Isicoff, the trustee also complained that the firms’ fees in three cases ranging from $1,200 to $1,900 were not “reasonable.”
But Isicoff, in a 41-page ruling, concluded the two-pronged method of payment should stand. She also found that the firms had not overcharged their clients.
The judge, however, wanted the firms to be more explicit in their agreements with clients about the services they intend to perform, as well as when and for how much money.