Attorney Liens in Bankruptcy

06 Jun Attorney Liens in Bankruptcy

It is not uncommon for debtors to have attorney fee claims against themselves and/or future property of the estate.

The most common example is an attorney fee lien agreement on a personal injury case. In the event of recovery in those cases, the attorney typically receives 33% or more of the gross settlement or judgment.

Recently, the Southern District Bankruptcy Court dealt with a case concerning a “charging lien,” in the family law context, and held that the lien was effective and could not be avoided by the Trustee.

In the case of In re Bush, 06-90235, the debtor entered into an agreement with his family law attorney prior to filing bankruptcy that gave her a “charging lien” on all assets that might become due to her in the dissolution proceeding. The debtor and his attorney entered into this agreement over a year pre-petition, yet recorded the lien within 30 days of the filing of the bankruptcy case.

The lien was secured as to his portion of community property assets. Thus a “preference” was objected to by the Trustee and an adversary proceeding was pursued.

The Court held the lien was valid and no preference existed. While a lien must reference the property it secures, the Court found that the broad language used in the Bush matter provided the same.

“The broad language used in Paragraph 8.3 of Sutherland’s retainer agreement creating her lien “on any funds or property due to or received by the debtormanifests the intent of both Sutherland and debtor to include real property or its proceeds awarded to debtor through the dissolution action as security for Sutherland’s charging lien.”

In upholding the preferential attorney fee lien, the Court looked first to the fact that the underlying agreement occurred over a year pre-petition, and the fact that recording the lien was simply complying with the California Family Law Code provisions.

The Court held the preference was proper and unavoidable.

Thus while this case was in the family law context, the overall theme was that a charging lien would secure an asset provided it specifically defines exactly what that asset is, and even if done generally, will probably still apply.

Written by Michael G. Doan

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