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The Bankruptcy Hotline

By ALM Staff | Law Journal Newsletters |
February 09, 2004

Pre-petition Debts for Legal Fees Are Subject to Discharge

The Seventh Circuit has ruled that Section 727 of the Bankruptcy Code authorizes the discharge of a debt for attorneys' fees pursuant to a pre-petition retainer agreement that called for pre and post-petition payments. Bethea v. Robert J. Adams & Associates, No. 03-1303 (Dec. 17, 2003).

Three debtors hired counsel to file bankruptcy petitions. Each agreed to a retainer covering the preparation and prosecution of the proceedings. These retainers, however, were to be paid over time, both pre- and post-petition. After the debtors received their discharges and the cases were closed, the lawyers continued to collect the unpaid installments pursuant to the agreement. The debtors (with the assistance of new counsel) commenced adversary proceedings seeking to hold their former lawyers in contempt for violating the injunctions implementing the discharges. The bankruptcy court found that “reasonable” attorneys' fees under ' 329(b) are not discharged. Further, that ' 329 supersedes the more general reach of the discharge provision, ' 727, “reasoning that any other conclusion would leave no work for ' 329(b) to do.” The district court affirmed.

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