Refunds: Bankruptcy Attorney Fees

26 Sep Refunds: Bankruptcy Attorney Fees

It is not uncommon for a debtor to have second thoughts about filing for bankruptcy relief, terminate attorney services prior to filing, and request a refund.  There are many reasons debtors change their mind, such as being persuaded by others that bankruptcy is not in their best interest, finding a cheaper price by less experienced attorneys straight out of school, stepping into newfound wealth with the ability pay their debts, misinformation about its effects on credit, etc.  Yet whether or not you are entitled to a refund of the fees you paid your attorney to date depends upon the nature of  your fee agreement and services provided thus far.   In situations where fees were paid in the form of a non-refundable retainer and were fully earned, refunds are unlikely(except for such items as court filing fees, etc).

NONREFUNDABLE RETAINER:

Many attorneys use fee agreements which contain “nonrefundable retainer” language.  Such language may include, but not be limited to, wording such as “all attorney fees paid are received in the form of a “non-refundable retainer,” “earned upon receipt,” and to “secure employment of the firm to file under Title 11.”  In such cases, retainer payments by definition, are non refundable.

The law, at least in California, holds that a retainer is a sum of money paid by a client up front to secure the availability of an attorney for a given task.  It is not based on the number of hours worked or expected to be worked by the attorney.  T & R Foods, Inc. v. Rose (1996) 47 CA4th Supp. 1, 7.  Accordingly, if the fees were actually paid to secure availability of the attorney, they may not bet refundable.

This is because securing the availability of the attorney serves the critical purpose of compensating the law firm for the lost opportunities to represent other clients.  As such, case law is clear that because the consideration for the true retainer is the attorney’s availability, the true retainer is earned when paid. Baranowski v. State Bar (1979) 24 C.3d 153, 164.

” A [classic] retainer is a sum of money paid by a client to secure an attorney’s availability over a given period of time. Thus, such a fee is earned by the attorney when paid since the attorney is entitled to the money regardless of whether he actually performs any services for the client.” [Id., at 164 fn.4].

FULLY EARNED:

Notwithstanding the fees paid may be in the form of a non-refundable retainer, you may want to also investigate whether the fees were also fully earned.  Many retainer agreements also contain language concerning the hourly rates in employing the law firm, and in many cases, which end up much being much higher than the “flat fee” qouted  in the retainer agreement.

In those cases, fees may have been incurred by attorney and staff work on your case, including but not limited to: case evaluation, file set up, creditor correspondence, creditor claim staging, pre-bankruptcy planning, creditor review, petition and data entry, and client correspondence.  Accordingly, even if the fees you paid were not in the form of a true retainer, you could also be liable for fees due to the time and hourly rates connected to your case based upon the language in the fee agreement and quantum meruit theory.

So if you have changed your mind about filing for Bankruptcy Protection, first make sure the decision is sound and not just based upon emotion.  But equally important, keep in mind that the law holds that the fees you paid may not be entirely refundable.  Thoroughly read your fee agreement and request an accounting of the time actually spent on your case to date.  The last thing you want to do is file a complaint or litigate the matter in fee arbitration or small claims, only to later lose your case and find you wasted all that time, money, and resources as a result of the fees being in the form of a non-refundable retainer or fully earned.

Written by Michael G. Doan

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