Two friends decided to make extra money selling watermelons outside the steel plant gate where they worked. They bought a truck, went down south and bought the melons for twenty five cents each. They drove back to Ohio and sold them outside the steel mill gate for twenty five cents apiece. After a few months they realized they were losing money. One friend said to the other, “Maybe we should buy a bigger truck!” I’ve always thought this to be a funny little joke, but it has real life application in business.
The first thing a prospective bankruptcy client always asks is, “How much does a bankruptcy cost?” I understand that every penny counts. That does not change the fact that you are calling an experienced bankruptcy attorney for advice, and that might be expensive, but not so much as other kinds of lawyers. There are real factors that go into my fee decision:
- What chapter? Chapter 13 costs more than chapter 7
- Learning advanced bankruptcy law and tactics
- What kind of client are you?
- Cost of running the office
- Don’t forget the tax man.
- Reasonable profit
Learning the Law
When I was a fresh bankruptcy attorney I charged a set price for each case, but that was before bankruptcy reform and the Means Test. After my first year of doing these cases, I remarked to one of the most senior trustees in the country that my cases were becoming more and more complicated. His response was, “they always were; only now you can see the issues.” That is the crux of the matter. Bankruptcy is a very complicated area of the law. To do it right requires great understanding of bankruptcy law, procedure, and the personalities of the players in the system.
I attend workshops put on by NACBA. These are expensive and normally out of state, but that is what it takes to keep on the razor’s edge of bankruptcy law. I can count on two fingers the number of Lorain County bankruptcy attorneys who are members of NACBA.
What kind of client are you?
The next and biggest facet of the bankruptcy attorney fee equation is you. What kind of client will you be? I have previously written that bankruptcy is all about paper and verification. That comes from you. Once I hear your story detailing your needs we will turn to the documents. Did you even bring them for the consultation? Are they complete? This tells me what you will like as a client going forward. It tells me whether we will have to nag you for paperwork you should be just dropping off, faxing or emailing on your own. Failure to cooperate can cost you.
Are you being sued, or is there a garnishment pending? If so, there is extra work and more fees to stop each. In each lawsuit a suggestion of bankruptcy must be filed. If there is a pending wage garnishment, a letter to the payroll department is needed to stop it. These are all extra fee items not associated with a typical bankruptcy client.
A busy bankruptcy practice requires an office. That brings a whole set of expenses that must be met by your attorney before he can even think about taking a paycheck. A summary of these expense categories is:
- general liability and malpractice insurance
- telephone and high speed internet
- continuing legal education
- licensing fees to the Ohio Supreme Court
- high tech office equipment
- subscription cost for bankruptcy software license
- internet hosting and other online services
Bankruptcy lawyers are members of the community just like you. When you are paid, each paycheck has various taxes for Federal, Social Security, Medicare, State and city deducted. When you pay a bankruptcy lawyer, his fee is taxable. A general rule of thumb is that an attorney should put aside a full third of the fees received for taxes, and this burden is about to get a whole lot worse, for you.
I’d like to make some money too
The bottom line is that your bankruptcy attorney is a business just like anywhere else you shop. Once the overhead and taxes are paid, I think you would be amazed to learn how little attorneys really earn. Unless the attorney has an employed spouse, he is unlikely to have medical coverage or a retirement plan. I know you want to pay as little as possible. This is human nature. No attorney can be around to help you for long without a profit. Without profit, a bigger truck doesn’t change anything.