I have just finished reading Lois Lupica’s paper on her impressive consumer bankruptcy fee study. This is a model of what empirical, law-and-society research should be – it combines data from electronic court records with focus groups and key player interviews to give a textured understanding of the role lawyer’s fees play in this particular legal system.
The finding that jumped out for me was a little-discussed but critical aspect of local bankruptcy culture: not how much, but when the trustee pays Chapter 13 lawyers’ fees (pp. 105-106). I practiced in a district where (before BAPCPA) the trustee paid out the fees as the first priority claim i.e. ahead of even secured creditors, but adequate protection payments (current mortgage and auto loan payments, e.g.) were paid directly to the creditors. There are apparently districts where every plan must include a $200 monthly payment for the first 15 months to pay the attorney, others where the pre-confirmation adequate protection payments are diverted to the attorney’s fees and added to the arrears paid over the remaining plan life (i.e. borrowed from secured creditors), and many other fascinating variations.
Considering the practical consequences of these disparate rules for attorneys as they decide what cases to take, and how to structure plan payments, it is easy to see why Chapter choice, and Chapter 13 success rates, would vary so dramatically from one district to another. For example, the front-loading of payments for the legal fee, followed by a payment step-down, would seem to increase the risk of plan failure. The sooner the lawyer is paid, the less risk she takes in filing the case. That could increase access, but could also encourage filing more risky Chapter 13 plans. If we are concerned about the high failure rate of Chapter 13s on the one hand, and the high costs and difficulty of obtaining counsel on the other, we might do well to study these variations further to see what outcomes they produce for debtors, creditors and lawyers.
It also struck me that Professor Lupica's extensive data tables with fees actually paid, by chapter, state, district and case outcome, and no-look fees for Chapter 13, can provide important independent variables for other studies modeling bankruptcy outcomes.