Why The No-Look Fee In Bankruptcy Harms Us All

no-look fees in Chapter 13 bankruptcyThe no-look fee is no good  in many bankruptcy cases.  It harms debtors, their lawyers, and the system as a whole.  It fails to compensate the lawyer for critical work, causing a disincentive to providing proper representation.

We give up a lot when we settle for being paid just the no-look fee.

No-look (or presumptive) fees were instituted to relieve courts of reviewing fee applications in situations where the case was routine.  Courts fixed a fee at which they would not look behind the number: it was presumed to be a fair fee for the case.  The lawyers who agreed to accept the no-look fee did so in order to stabilize their own case handling procedures.  It also enabled lawyers to handle cases without being subject to the vagaries of the whims of their judges.

Courts differ in in their willingness to allow a fee application for fees in excess of the no-look fee.  Some judges are open to awarding additional compensation.  Others see it akin to an election of remedies:  once you chose the convenience of the presumptive fee, you are barred from seeking more.  Still others require you to justify in open court why it took more than the no look fee to accomplish your client’s goals.

While the no look fee may work to put a floor under fees in a community and to validate that the case really will take that much, it leads the public to think that bankruptcy representation is a commodity, fungible and routine.

Balderdash!  The issues in bankruptcy come in an infinite number of combinations and change through the course of a Chapter 13.  We have law that remains new and unsettled, not to mention inconsistent and opaque.  We deal with people’s lives, home, businesses and retirement.

Avoiding The No-Look Fee Yields A Happier Client, Happier Lawyer, And Better System

Over time we start looking at the no-look fee as compensation for the bare minimum amount of work a case will take to be successful.  There’s no financial incentive to doing more than the bare minimum, is there?  We have ethical considerations, to be sure; but there are means of handling a Chapter 13 case that require less work than is optimal without triggering an ethical issue.

If we were getting paid a rate that justified the work, many of us would put the nose to the grindstone as it were.  We as an industry would work harder for our clients, creating a better outcome and a more effective system overall.  We’d take fewer cases because we’d make more money per case, which would enable our offices to provide a higher level of client care to those we choose to assist.

So Why Don’t We Act In Our Own Best Interests?

In spite of those realities, many bankruptcy attorneys clutch the no-look fee because it’s easier to do so than learn how to draft a compelling fee application.

It’s not just the desire to be paid fairly in a case that drives me to promote filing fee applications.  It’s the educational quality of a well written fee app supported by time records on the judges that I treasure.

Recount the issues a case presents, break out the time it takes to do the means test, quantify what endless continuances add to the cost.

Too many of our bankrutpcy judges come from Chapter 11 practice or creditor representation.  They find it easy to discount the difficulty of consumer cases because there are fewer zeroes behind the numbers involved.

In the face of that reality, we avoid conflict and stick to the no-look fee.

On Monday, March 23, 2010 at 5:00pm Pacific time / 8:00pm Eastern time I will be teaming up with Jay Fleischman for a one-of-a-kind workshop dealing with the ins-and-outs of fee applications.  The workshop will include not only to basics of fee applications in bankruptcy matters but also step-by-step how-to education on getting paid your true value in Chapter 13 cases.

There will be more information tomorrow, at which time a limited number of people will be invited to sign up for the workshop.  Look out for more information right here (or by email if you get automatica updates to this blog).

Image credit:  S@Z/Flickr

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  • http://www.jacksonwhitelaw.com/arizona-bankruptcy John Skiba

    My father in law is a surgeon and we were discussing last night how flat fees in bankruptcy and how insurance companies in his industry are actually lowering the quality to the client/patient. He relayed how in a recent knee replacement the the total payout to the surgeon was $1,500. To compensate for this low payout the surgeon is required to take on many more cases that they would prefer, resulting in less time for each patient and more chance of error.

    It is similar with the no-look fee in bankruptcy. Because we are limited, either by the no look fee or by a judge’s unwillingness to grant fees, we must take on huge case loads to make ends meet. This results in less time that can be spent on each case. I would be interested in hearing how attorneys are doing that bill their 13’s on a hourly rate. When I calculate my hourly rate on a flat fee 13 it is embarassing low. I wouldn’t mind converting to hourly billing but worry about competing in a market where nearly everyone is flat fee. Alternatively, it would be great to get direction on the process of collecting fees in addition to the flat fee.

    • Cathy

      The huge case load is just malpractice waiting to happen. I tell people I don’t compete on price, I compete on quality.

  • Joe Romano

    I have utilized fee applications since 2005. As a business owner, it allows me to keep track of the efficiency of my associate’s time on matters. While we still charge a presumptive “flat rate” for ch. 7’s ( we would be placed out of the market if we did it on an hourly basis), we still keep time entries for all Ch. 7’s as well. That way I know whether we are either under-charging or not optimally efficient in that practice as well. As far as our Ch. 13 practice goes, I think there are major ethical issues in the use of the “no-look” fee. At an hourly rate of $200/hr. I certainly do not want to charge a client $3,500 for 6 hours of work performed in their Ch. 13. That would amount to an hourly rate of $583/hr. Conversely, I will not cheat myself charging $3,500 for 30 hours of work on another Ch. 13. That amounts to $116/hr. Some will say that it all “averages out in the end.” But, for whom? Certainly, for the attorney. But, ultimately half your clients get cheated and you get cheated the other half of the time. And, that’s not good for anyone.

    • Cathy

      I resist the idea that “it all averages out in the end” since my practice is largely made up of complex, troubled cases. I don’t ever seem to have the easy case, and I’m not sure how many easy cases there are these days. I feel blessed when I find a case where I could do the job well for the no look fee….there’ve been probably a half a dozen in the past five years…

  • Brett Weiss

    There’s another reason why many consumer bankruptcy attorneys choose the “no look” fee over tracking time and filing a fee application: time.

    It’s one thing to track time and spend a couple of hours preparing and filing a fee app for a $15,000 fee when you’ve got several hourly cases. It’s quite another thing to do this for a $3,500 fee when you’ve got over 100 active cases; there just isn’t enough time, and the result is you delay filing the app and don’t get paid until much later. The Chapter 13 Trustee is also likely to object, particularly to the time spent preparing the app.

    Oh, and Chapter 13 Trustees *hate* fee apps, and will do their best to make your life difficult if you file them.

    • Cathy

      You’ve obviously got to be efficient about preparing the app and disciplined about doing it. If you don’t, you’re always providing the unexpected services at your own expense.

      We have case law in the 9th Circuit that says that you can be paid for the preparation of the fee app. Don’t tell me the Chapter 11 boys are doing theirs gratis?

      I don’t think I’ve ever had a Chapter 13 trustee object to a fee app. Either I have my trustees trained better than you do, Brett, or it’s a trustee to trustee thing.

      If the judges and the trustees want quality representation for debtors, they have to support the fees necessary to make a living in the business.

  • F. Bennett Callicoat

    I’m torn about this issue.

    10 short months ago I escaped my last firm, which was stuck in the 80’s with hourly billing for consumer bankruptcies. I literally spent a third of my time trying to track what should be a flat-fee practice.

    Today, I’m my own boss and the first thing I jettisoned was hourly billing. I hate hourly billing and really and truly think it is borderline unethical for many reasons. But I also hate it because it is an inefficient use of my time.

    Additionally, in the course of dumping my old “hourly billing” model and going to a flat fee model, I’ve increased my revenues and receipts on the order of 140%.

    That said, I reject the “do it quick and cheap” model that a flat fee tends to push you into. I pride myself of being the best consumer bankruptcy lawyer in my city. I take a holistic view to serving my clients and offer services that no other bankruptcy lawyer offers, including post-bankruptcy counseling and financial planning.

    Rock, meet hard place.

    • Cathy

      One of the nice things about a hybrid system where you contract for a minimum fee and the possibility of seeking additional fees is that you can assure the client that your minimum is your best estimate of what it will cost, and doesn’t include a cushion to make the next case feasible. If your client has additional issues or things change, the fee increases, but only when and if the need arises.