New Insights on Bifurcated Chapter 7 Bankruptcy from Brown

New case law from the Southern District of Florida (SDFL) provides good news to consumer bankruptcy attorneys across the country. While the Court's decision isn't binding on other jurisdictions, we believe that judges and the U.S. Trustee's office will look to the ruling from Chief Judge Isicoff for guidance moving forward. Five main ideas stood out that every attorney practicing chapter 7 bankruptcy should know:

  1. Bifurcation is allowed under the Code and Ethics Rules. In fact, the Court stated that "bifurcation occurs regularly in chapter 7 cases, as well as in other bankruptcy cases."
  2. Reasonableness of fees is based on work promised, not work performed. In other words, the reasonableness of fees isn't judged on the allocation between pre-petition and post-petition charges. Courts should take "into account not only the work that was done but also services that might have been required in the case for which there would have been no additional charge. 
  3. Clients can be acceptably qualified for chapter 7 during the initial consultation, but need to have a full understanding of bifurcation. The Court held that attorneys can gather enough information at the initial consultation to qualify clients for chapter 7 bankruptcy. The case can be safely bifurcated if the client understands the 14-day rescission period and the attorney's duty to continue with representation. Clients should review a separate disclosure explaining the up-front payment and the full post-petition payment before agreeing to the arrangement. 
  4. Disclosure of Compensation should be made with the emergency petition, then amended. The court held that the attorney should file the Form 2030 with the emergency petition explaining their compensation at the time of the filing and then amend their form when the Statements and Schedules are completed to reflect the continuing engagement. 
  5. In the Southern District of Florida, Filing Fees must be paid by the debtor. According to Chief Judge Isicoff, advancing filing fees is a violation of the Florida rules of professional responsibility, which has no relevance outside the state. The good news is that all attorneys are SDFL are standing on an even playing field, and attorneys in other districts may continue conducting business as they have been. 

The Brown decision may end up being as important to endorsing the practice of bifurcation as the Hazlett decision. It's important not only because it clarifies best practices for attorneys, but because it opens the door for more Americans to access the fresh start that bankruptcy provides by filing now and paying over time. Fresh Start Funding remains a leader in helping attorneys grow their practices by offering $0-Down payment plans to clients. For more information, please schedule a free 30-minute consultation. 

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