Clients often wonder about attorneys’ fees.  Fees may scare potential clients from ever talking to a lawyer in times of financial trouble.  That’s why it is important to learn about different “fee structures” and their applicability to your business or family.

Chapter 7 and 13 of the United States Bankruptcy Code deal with personal bankruptcies.  Chapter 7 is for individuals with a low income, less than $6,575 per month.  Chapter 13 is allowed for people with debts up to $1,010,650 in secured debt and up to $336,900 in unsecured debt.  If an individual exceeds these amounts, she will have to file for business bankruptcy under Chapter 11.

Chapter 11 covers corporations, partnerships, and limited liability companies (LLCs), and attorneys are paid by the billable hour.  Flat, fixed fees are charged in Chapter 7 and 13 cases, because the relative simplicity of the cases allows costs to be estimated.  However, in Chapter 11 cases, flat fees are not used because the work can involve an endless parade of hours.

The whole goal in Chapter 11 bankruptcy is to convince the court to consider a plan of reorganization.  This requires countless hours of sifting through corporate paperwork.  Attorneys’ fees add up quickly and unpredictably.  Chapter 11 attorney work is conducive to an hourly fee.

Secondly, flat fees are not used because the bankruptcy court must approve of the fees charged based on the “rates charged” and “time spent.”  Once the attorney’s flat fee amount is approved by the court, it is set in stone, even if the number of hours ended up exceeding the flat fee. 

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