During the coronavirus pandemic, many borrowers have taken advantage of available 180-day mortgage deferrals. These deferrals provide much-needed short term relief. Unfortunately, the deferral will eventually expire, with the standard term being about 180 days. When the mortgage deferral does expire, lenders will want their money and may come at borrowers aggressively.

Other secured debt relief, such as vehicle payment deferrals, might be available on a case-by-case basis. Even assuming such relief is possible, the same thing inevitably happens. The grace period ends, and aggressive collection techniques begin.

No one is sure how big the coming Chapter 13 bankruptcy wave might be, but almost everyone agrees that it could be a tsunami. These bankruptcies are rather intricate, but they are not nearly as complex as some lawyers believe they are. If the client is unable to pay upfront, the trustee charges nothing to collect the remaining balance.

Assessing the Client’s Need

A few people reach out to bankruptcy attorneys relatively early. They are only a month or two behind on secured debt payments. But most clients wait until a foreclosure sale or other adverse action is imminent. At that point, an attorney must act quickly and decisively to preserve the client’s interests.

As discussed in our companion post, most bankruptcy preparation software programs automatically populate most documents, including the creditor matrix. Home mortgage are bought and sold so frequently that the public record information might not always be up to date. Additionally, not all servicing companies timely inform borrowers of such changes.

So, be sure notice of the bankruptcy filing goes to the proper parties. If a foreclosure sale is scheduled in the next few days, the sheriff or other auctioning agency should also receive official notice. Bankruptcy’s Automatic Stay does not apply if the creditor receives no notice. Additionally, it is rather difficult to undo a foreclosure sale, especially when there is egg on your face.

Charging a Fee

In most jurisdictions, $3,000 is the customary fee for a Chapter 13. Ideally, the client pays the entire fee upfront. But we do not live in an ideal world. Many Chapter 13 debtors do not have instant access to sufficient funds. And, as discussed above, circumstances often dictate that the lawyer file the petition in a few days, or even a few hours, as opposed to a few months. So, a pre-filing payment plan might be impractical.

Many lawyers heavily advertise zero-down bankruptcies. Typically, the client only pays the filing fee. The lawyer receives the full fee via the monthly debt consolidation payment. More on that below. Zero-down and other problematic attorney’s fees arrangements are technically ethical, but there are some concerns in this area.

Typically, it is best to charge some money upfront, perhaps a third, and roll the reminder into the monthly debt consolidation payment. That approach speeds the filing, protects the client from excessive charges, and ensures that lawyers receive compensation for their services.

The Monthly Debt Consolidation Payment

In a Chapter 13, the protected repayment period lasts either three or five years, depending on the debtor’s income. So, it is rather easy to at least estimate the monthly payment amount. Add the debtor’s secured debt and priority unsecured debt together (the legal fee is a priority unsecured debt), add a 10 percent trustee’s fee, and divide that amount by either fifteen or sixty.

Advise the client that the amount is subject to change and the first payment is usually due seven days after the petition is filed. Also advise the client that, if the monthly debt consolidation payment is unaffordable, a conversion to Chapter 7 is usually possible.

Generally, if the debtor stays in the plan at least six months, that is enough time to pay the attorneys’ feel balance.

Possible Adversarial Matters

In addition to motions for turnover and objections to discharge, which were discussed in our Chapter 7 post, a Chapter 13 could involve a motion to lift the Stay. Creditors frequently file these motions if the debtor is more than three or four months behind on payments or the debtor has threatened the collateral in some way.

Getting All Your Affairs in Order

Most bankruptcy adversarial matters settle out of court. That settlement commonly includes an accelerated repayment schedule that is customized to the borrowers’ ability. If you’re unsatisfied with your lawyer or the service you’ve received, you can change lawyers before your bankruptcy is filed. You deserve the highest quality services and expertise to handle your bankruptcy.

Lee Paulk Moran has been a member of the Georgia State Bar Association since 1979, and a member of the National Association of Consumer Bankruptcy Attorneys since 2000. His areas of practice include bankruptcy, disability, Workers’ Compensation, and more.

When you are ready to talk about your case, you will receive a free consultation with an actual attorney from Morgan & Morgan. We pride ourselves in treating clients like family, not case numbers.