Cash-Strapped Chapter 7 Debtors Get Lift in New Ruling Over Fees

Individuals wishing to file Chapter 7 bankruptcy but lacking funds for it got a push from a recent federal court decision that supports a potential solution.

The U.S. District Court for the District of South Carolina last month said the jurisdiction’s local rules don’t prevent a bankruptcy attorney from “bifurcating” Chapter 7 services into pre- and post-filing parts—and split-charging clients accordingly.

Marketing of such bifurcated services to Chapter 7 debtors has been controversial for years, as bankruptcy attorneys have traditionally collected fees upfront and worked through a case’s conclusion. But the practice is appearing nationwide amid debtors’ pandemic-driven financial struggles ...