Van Horn Law Group and Debtstoppers Are Challenged by The US Trustee’s Office on How They Provide Zero-Down Bankruptcy Cases in Fort Lauderdale
For a few years now, the Van Horn Law Group and Debtstoppers have been providing the Fort Lauderdale community with zero-down Chapter 7 bankruptcy services. This is a practice that is done by many bankruptcy attorneys around the country and just as many bankruptcy courts have reached different opinions on whether the practice is acceptable or not. At the Bankruptcy Law Firm of Orfelia Mayor, we support the zero-down Chapter 7 business practice and offer the same to our clients that need to file bankruptcy right away but can’t pay all of the fees before filing.
How Chapter 7 Bankruptcy Works – Chapter 7 Bankruptcy Law Basics
Before we can discuss what is happening in bankruptcy court between Van Horn Law Group, Debtstoppers and the US Trustee, we need to have a brief discussion about some of the basic legal premises of a Fort Lauderdale Chapter 7 bankruptcy case.
A Fort Lauderdale Chapter 7 bankruptcy begins with the filing of a Voluntary Petition. The Voluntary Petition opens the bankruptcy case and offers the basic information about the person(s) filing and summarizes various statistics about the case (amount of money owed, number of creditors, etc). Along with the voluntary petition, other schedules must be filed with the court. To summarize, these “schedules” are forms that list a debtor’s assets and liabilities; current income and monthly expenses; a statement of financial affairs that has a variety of questions on different subjects; and disclosure of any contracts or leases that you are a party to and a statement as to whether you want to assume or reject them. All of these schedules together comprise what is known as a Chapter 7 bankruptcy filing.
Normally, these are all completed before the case is filed and the Chapter 7 bankruptcy attorney must be paid in full prior to filing the case. The reason that bankruptcy attorney’s must be paid in full prior to filing a Chapter 7 is because under bankruptcy law, once a Chapter 7 case is filed, anyone who is owed money by the person filing bankruptcy cannot collect on the pre-bankruptcy petition debt. They cannot even attempt to collect because of the bankruptcy automatic stay and definitely cannot collect after the discharge is granted. Therein lies the problem alleged by the US Trustee- if you owe your Chapter 7 bankruptcy attorney legal fees for work that was done before the case was filed – they cannot legally collect that money from you. The key phrase in the previous sentence is “work that was done before the case was filed.“
In many bankruptcy jurisdictions around the country, bankruptcy courts have allowed the bifurcation of bankruptcy attorney fees in Chapter 7 bankruptcy cases. What does that mean? Simply stated – “bifurcation” is the splitting of something into two parts. Attorneys that do a portion of the work before the Chapter 7 bankruptcy case is filed can charge for that work pre-petition. Any work that is done after the Chapter 7 bankruptcy case is filed can be charged for and collected without running contrary to the bankruptcy code. Other courts have ruled that in order to properly bifurcate bankruptcy legal fees, the bankruptcy attorney must file an emergency Chapter 7 bankruptcy petition in order to open the case and then prepare and file the remaining schedules within a two week deadline that the court will set. Some bankruptcy courts, including the Middle District in Florida, have ruled that the actual preparation of the schedules must occur after the case is filed in order for a Fort Lauderdale bankruptcy attorney to avoid becoming a “pre-petition creditor.”
US Trustee Challenges Van Horn Law Group Business Practice in Zero-Down Chapter 7 Bankruptcy Cases
The local US Trustee for the Southern District of Florida Bankruptcy Court has challenged the business practice of the Van Horn Law Group. The Van Horn Law Group files the entire petition when the case is filed in bankruptcy court – which makes them a pre-petition creditor since the majority of the work was done prior to filing. In summary, the US Trustee has stated that Van Horn Law Group has “implemented business practices which include the following features:”
The US Trustee specifically states that they are not taking a position on the overall practice of bifurcating fees and acknowledges that the bifurcation standards set forth in Florida’s Middle District Bankruptcy Court as outlined in Walton v. Clark & Washington, P.C. 469 B.R. 383 (Bankr. M.D. Fla 2012) are acceptable under certain circumstances. (We are happy to read that the US Trustee is not seeking to shut down the bifurcation process itself and is only interested in that it is done according to the current legal standards for bifurcation that have been set in the Middle District of Florida and around the country.)
The main issue raised by the US Trustee in the cases filed by the Van horn Law Group are procedural issues. The US Trustee alleges that since Van Horn Law Group files the full petition on day one (instead of an emergency petition that is only 4 pages) – the overwhelming majority of the work was done before filing the case and that pursuant to the bankruptcy automatic stay – they are not entitled to collect fees post-petition for work that was done pre-petition since they are a “creditor” on the day of filing for the legal work that was already done. As stated by the US Trustee in their court filing: “Clearly, these services all occurred during the period covered under the Pre-Petition Agreement and any fee owed would be discharged.”
US Trustee Challenges DebtStoppers Business Practice in Zero-Down Chapter 7 Bankruptcy Cases
Unsurprisingly, a different attorney for the local US Trustee has also challenged the business practices of the DebtStoppers in relation to how they file Zero-Down Chapter 7 bankruptcy cases. In summary, the US Trustee also states that DebtStoppers has “implemented business practices which include the following features:”
Similar to the issues raised in the Van Horn Law Group challenge, Debt Stoppers is also in the habit of filing the entire set of schedules and forms on day one of the case. The US Trustee states that by doing so, the majority of the work was done and legal fees earned before the case was filed and not afterwards. DebtStoppers, however, has a couple of issues in addition to those raised in the Van Horn Law Group challenge.
The US Trustee alleges that Debt Stoppers’ pre-petition and post-petition fee agreements conflict with each other. In the pre-petition fee agreement, it states that DebtStoppers will “personally review with you and sign the completed petition, statements and schedules.” The US Trustee alleges that because the complete bankruptcy case was prepared before the case was filed – the majority of the legal fees earned were pre-petition and were therefore wiped out by the bankruptcy filing itself. In the Debt Stoppers challenge, the US Trustee listed all of the legal services that Debt Stoppers will perform after filing the Chapter 7 bankruptcy case (taken from the DebtStoppers post-petition fee agreement) and surmises that the post-petition services are disproportionate to the “legal fees” being charged.
Summary of US Trustee Challenges to DebtStoppers and Van Horn Legal Group
Both Debt Stoppers and Van Horn Law Group file complete Chapter 7 bankruptcy petitions on the day the case if filed. By doing so, it would appear that the bulk of the legal work was done prior to the filing of the petition and therefore, those legal fees were wiped out upon filing the bankruptcy case and cannot be collected by the Van Horn Law Group or by DebtStoppers. The Zero-Down Chapter 7 bankruptcy business model that has been approved by countless courts – including the Middle District of Florida bankruptcy court – is the model where an emergency Chapter 7 bankruptcy petition is filed and then the remaining schedules and forms are prepared and filed after the bankruptcy case is initiated. It is important to note that the US Trustee’s challenges are procedural in nature and in both cases that are the subject of these challenges, the clients received the discharge of their debts without incident and there were no issues related to the quality of the legal work. Many bankruptcy lawyers in the Fort Lauderdale area (including ours) provides zero-down Chapter 7 bankruptcy cases and it’s a good idea to have the local bankruptcy court define the procedure that must be used when doing so. Of course, on the other hand, the Fort Lauderdale bankruptcy court can dis-allow the practice but given that the U.S. Trustee takes no position on whether it should be allowed or not, we are hopeful that the $0 down Chapter 7 bankruptcy model will be allowed to continue but with guidelines on how they should be filed.
To summarize: With some variation, both challenges are basically comprised of the same issue: The US Trustee alleges that if you prepare and file the full Chapter 7 bankruptcy petition when the case if filed, then the Fort Lauderdale bankruptcy attorney has already earned the legal fees and they are effectively wiped out upon the filing of the case. They also allege that both bankruptcy law firms did not fully disclose the fee arrangements to the court post-petition by amending their bankruptcy attorney disclosure of compensation.
Current Status of the US Trustee Challenges
Both Van Horn Law Group and Debt Stoppers filed robust responses to the U.S. Trustee’s legal challenge. Both law firms defended their business model and cited the appropriate law that they feel supports their position. A hearing was held on February 22, 2021 and we are waiting for the bankruptcy court to issue an opinion on whether Zero-Down Chapter 7 bankruptcies can continue in Fort Lauderdale, and if they can, what is the correct procedural process in which to bifurcate a Chapter 7 bankruptcy. We are closely monitoring these challenges and will update this page once we know the outcome!
We Offer $0 Down Chapter 7 Bankruptcy in Fort Lauderdale
At the Bankruptcy Law Firm of Orfelia Mayor, we know that sometimes you need to file a Chapter 7 bankruptcy right away and may not have the money for bankruptcy attorney fees up front. We offer zero or low-money down Chapter 7 bankruptcies and we already follow the method referenced in the US Trustee’s document as acceptable. To file a zero or low-money down Chapter 7 bankruptcy, our process is modeled after the Walton v. Clark & Washington, P.C. 469 B.R. 383 (Bankr. M.D. Fla 2012) standards adopted by the Orlando Bankruptcy court. Essentially, the following:
We are keeping our fingers crossed that these challenges are resolved with a uniform standard in the Southern District of Florida bankruptcy court on how attorneys can adopt a bifurcation business model that helps good people get through bad times. We believe in the concept of bifurcation because we see the unforeseen circumstances that cause people to come and find out their legal rights under bankruptcy. Preparing and filing a zero-down Chapter 7 bankruptcy is more time consuming than preparing a regular “fees up front” case because the Fort Lauderdale bankruptcy attorney has to do more work in filing an emergency petition and then filing the rest of the documents. The zero-down option legal fees are a little more because of this but if paying over time post-petition makes a bankruptcy affordable, there is value in the process.
Make An Appointment Today to Find Out if a Chapter 7 Bankruptcy is Right For You
The Bankruptcy Law Firm of Orfelia Mayor is a debt relief agency in Broward County that loves what they do! We help people file for bankruptcy under the bankruptcy code. Make our day by letting us help you stop wage garnishment, stop foreclosure sales, stop car repos and just get you back into loving life! Your creditors have lawyers on their side – shouldn’t you have a Fort Lauderdale bankruptcy lawyer too?
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