Are Bifurcated Chapter 7s Actually Legal? [Part 1 of 2]

If you’ve ever wondered if bifurcated Chapter 7s are actually legal or not, this is the episode for you.

The surprising truth is that after a tidal wave of legal innovation, many bankruptcy lawyers routinely offer zero down Chapter 7s. You just have to follow the arcane rules involving bifurcating your cases into prepetition and postpetition portions. And as it turns out, no judge has ever ruled that a Chapter 7 cannot be bifurcated, so long as it’s done correctly.

This is part 1 of a 2-part episode, where we start by busting the top three bifurcation myths, including:

  1. Why bifurcated Chapter 7s do NOT violate the automatic stay or discharge injunction, even though you’re collecting money postpetition from debtors
  2. How “saddling” poor debtors with a postpetition payment plan for a bifurcated bankruptcy is way better than the alternative of no traditional bankruptcy at all
  3. Why it’s a total myth that there are many US Trustee enforcement actions that prove that bifurcated Chapter 7s are illegal

I also go over the 5 specific mistakes you need to avoid in order to get into hot water with the US Trustee.

In fact, to help you make up your own mind about what the legal precedents here are, I’ve written a case law summary of the 20 cases that cover issues relevant to zero down bifurcated Chapter 7 bankruptcies. So if you’re interested in learning more on this topic, you can download my case law summary for free, which includes:

  • A writeup of each of the 20+ cases relevant to bifurcated bankruptcies
  • A review of every seminal case, including Utah’s In re Hazlett, and Florida’s In re Brown, that has blessed bifurcation
  • A detailed analysis of opinions written by judges who clearly hate bifurcation, including an opinion in South Carolina that was reversed on appeal
  • Precise guidelines lifted directly from these opinions that show you how to comply with legal guidelines whatever district you’re in
  • The full text of every opinion

You can get all these files for free sent to your email inbox by clicking this link.

You can listen to the episode by clicking the “play” button in the audio player above, or read a full transcript below.

You can also sign up to get an email when we release new episodes of the Bankruptcy Law Success podcast at the top of that page.

Hi, this is Bob Hiler of the Bankruptcy Law Success podcast, where we introduce you to successful bankruptcy lawyers, as well as powerful ideas that can transform your bankruptcy practice.

Today, I’m recording a solo episode about the legal underpinnings of bifurcated Chapter 7s. So, if you’ve ever wondered if bifurcated Chapter 7s are actually legal or not, this is the episode for you.

More specifically, in this podcast episode, we’ll be correcting some common myths that many bankruptcy attorneys believe about bifurcated Chapter 7s, and we’ll be replacing those myths with solid legal facts and case law.

The first myth that I constantly hear is that bifurcated Chapter 7s obviously violate the automatic stay or discharge injunction because you’re collecting money postpetition from debtors. But that’s just not true.

I mean, it is true that attorneys can’t charge postpetition for prepetition work, but that’s not what a bifurcated Chapter 7 is all about.

The concept behind a bifurcated bankruptcy is that bankruptcy attorneys will charge postpetition only for work that they do postpetition.

There’s nothing legally wrong if a debtor (say) files their own petition pro se and then hires an attorney postpetition to help their bankruptcy get over the finish line.

Likewise, there’s nothing legally wrong if a debtor decides to hire one attorney to do a traditional bankruptcy, and then after the petition is filed hires a different attorney to do an adversarial proceeding in that same bankruptcy.

And that’s exactly the same concept behind a bifurcated Chapter 7. A debtor will sign one contract prepetition that covers only prepetition work done by an attorney, and then after they file, the debtor can choose to sign a second contract postpetition that covers only postpetition work. And since they’re charging postpetition for postpetition work, that means that attorneys can offer postpetition payment plans that let debtors make affordable payments over time.

To be clear, we’re definitely not talking about charging postpetition for prepetition work, which is still a no-no for bankruptcy.

Myth number two is that bifurcated Chapter 7s prevent debtors from getting a true ” fresh start” that they could’ve gotten from a traditional bankruptcy.

Now, the argument here is that any debtor that uses a bifurcated zero down Chapter 7 could have theoretically picked another type of bankruptcy on the bankruptcy menu and received debt relief, without having to also make payments after the petition is filed.

To boil this argument down, by allowing a debtor to make payments over time, bifurcated Chapter 7s are supposedly robbing debtors of the fresh start that they could get from a different kind of bankruptcy.

Frankly, this is an absurd argument, so let’s break it down.

Let’s start by looking at the first alternative to a bifurcated Chapter 7 with a postpetition payment plan, which would be a traditional Chapter 7 that debtors have to prepay upfront.

Here, the attorney collects all their money prepetition. So for debtors that don’t have cash burning a hole in their pocket, paying the attorney prepetition is going to require a layaway plan.

But there are two problems with layaway plans.

The first problem with a layaway plan is that many debtors who want to file for bankruptcy are being garnished. If 25% of your disposable income is being garnished, it’s usually impossible to find enough money to prepay for a traditional bankruptcy.

So a garnished debtor often can’t afford a traditional Chapter 7. So they can’t get debt relief, which means they can’t afford a traditional Chapter 7…

in other words, without a bifurcated Chapter 7 that allows payments over time, many garnished debtors would just have to suffer until the garnishment ends, even if that’s going to be years in the future.

And the second problem with layaway plans is that if the debtor can only afford to make small payments on that layaway plan, it may take months or even years to be able to afford a traditional bankruptcy.

And that means a poor debtor may spend all that time suffering from debt without getting any debt relief from a Chapter 7.

Meanwhile, the only other bankruptcy alternative remaining is a Chapter 13. Many attorneys don’t offer a zero down Chapter 13, but even if a zero down chapter 13 is available, because it’s a Chapter 13, the debtor will almost always have to pay back at least part of their debts that would have been discharged in a Chapter 7. Plus, many debtors just aren’t financially stable enough to get their Chapter 13 payment plan approved, let alone make payments for three to five years.

So to review, there are two alternatives to a bifurcated Chapter 7 bankruptcy. First, there’s a traditional Chapter 7 that you prepay upfront, but if you can’t afford to prepay your legal fees and filing fees, you’re out of luck. And second, there’s a traditional chapter 13 that requires you to pay at least double the legal fees, and usually you have to make at least some payments on the general unsecured debt that you would walk away from in a Chapter 7. Plus those payments last for up to five years.

So these two alternatives to a bifurcated Chapter 7 bankruptcy, they’re great for certain people. A traditional Chapter 7 is going to work great for a regular middle-class filer that can afford to prepay for a traditional bankruptcy. Or a traditional Chapter 13 is going to work great for a homeowner looking to cure an arrears. But if we’re looking at somebody who is struggling, maybe this is a no-asset Chapter 7, or a Chapter 7 where perhaps a debtor has a little bit of equity in their car… Or maybe somebody that’s being garnished.. . The best alternative for that debtor is going to be a bifurcated Chapter 7, and that’s going to be true by a lot.

So taking a step back, there’s a whole segment of the US population that needs debt relief, but cannot afford a traditional bankruptcy. I believe that this is a huge business opportunity for bankruptcy attorneys. I also believe that as an industry, we have a moral obligation to help poor debtors that need debt relief, but can’t afford a traditional bankruptcy. That’s why I think it’s a great thing that debtors have the option to get debt relief, even if they’re supposedly “saddled” with a payment plan for a bifurcated Chapter 7 bankruptcy.

Okay, so myth number three is that there are many US Trustee enforcement actions that prove that bifurcated Chapter 7s are illegal. And that myth is just dead wrong.

To be fair, there are many UST enforcement actions brought against bankruptcy attorneys who are doing something that they’re calling a bifurcated Chapter 7 bankruptcy. And some of these attorneys have in fact got into hot water with the US Trustee. But to date there hasn’t been an opinion which has ruled against bifurcated Chapter 7s when they’re done properly.

In actuality, there’s been a huge growth in case law that supports bifurcated Chapter 7s. And this case law also explains exactly what guidelines a bankruptcy attorney has to follow to do a bifurcated Chapter 7 properly.

Now on this podcast, I’ll be going over these legal guidelines for bifurcated Chapter 7s. And I’ll be doing this in two parts. First, in the remainder of this podcast episode, I’ll be reviewing chapter two of my book, The Zero-Down Bankruptcy Revolution, which explains how to make a bifurcated Chapter 7 legally bulletproof.

And then since I published my book in August, 2019, I’ll also be recording a part two on this topic where we update the book for everything that’s happened in the last two and a half years since August 2019.

One last thing is that I also wrote a case law summary of the 20 cases that cover issues relevant to zero down bankruptcies. So if you’re interested in learning more on this topic, you can download that for free.

Just go to “Caselaw” is all one word. So it’s c-a-s-e-l-a-w with no spaces or dashes. There you’ll be able to sign up to download my case law summary. And in addition to my writeup, I’ve also included the full text of every opinion in the free download.

So you can read my review of each case that I’ve written, and you can also read the case yourself and make up your own mind on what the interpretation should be. Again, to download my case law summary for free, just go to slash case law and caselaw is all one word. So c-a-s-e-l-a-w with no spaces or dashes.

Okay. So without further ado, let’s review Chapter 2 of my book, The Zero-Down Bankruptcy Revolution:

Many attorneys needlessly fear that they would be violating the automatic stay or discharge injunction if they collect any unpaid bankruptcy-related legal fees once a debtor has filed a zero-down Chapter 7 bankruptcy. They always ask…

“Won’t zero-down 7s get me disbarred?”

The answer is no!

In fact, after a tidal wave of legal innovation, many bankruptcy lawyers routinely offer zero-down Chapter 7s. You just have to follow the arcane rules involving “bifurcating” your cases into prepetition and postpetition portions.

As it turns out, no judge has ever ruled that a Chapter 7 can’t be bifurcated, so long as it’s done correctly.

To be fair, judges have ruled against some attorneys who have failed to bifurcate a bankruptcy correctly, or who have committed other avoidable errors. The opinions these judges have written actually give us a roadmap of mistakes to avoid. This means that as long as you avoid those common mistakes, you’ll be able to make your zero-down bifurcated Chapter 7s immune even to a legal challenge from an overzealous U.S. Trustee.

That brings us to our first and most fundamental mistake to avoid, which is…

Mistake #1: Not respecting the bifurcation

It all started when Donald Walton, a U.S. Trustee, decided that he didn’t like how Clark & Washington, PC was offering its clients postpetition payment options. The resulting court cases ended up creating useful guidelines for the rest of us on how to bifurcate Chapter 7s properly.

At the time, Clark & Washington used what courts and attorneys in the southeastern U.S. have called a “straddle” agreement. This agreement did not involve a classic bifurcation into separate prepetition and postpetition agreements. Instead, this “straddle” was a single, prepetition engagement agreement that separately describes the prepetition and postpetition fees and services. The firm would then take a “retainer” for the postpetition fee in the form of post-dated checks.

However, the judge ruled against Clark & Washington, because the firm collected post-dated checks from the client before the petition was filed. The judge assessed these post-dated checks to be promissory notes from the debtor. That’s why the judge held that these post-dated checks—like all promissory notes—were prepetition claims and hence subject to the automatic stay or the discharge injunction.

So this first Clark & Washington opinion taught us that not respecting the bifurcation of a bankruptcy into two agreements can result in unpaid attorney’s fees being discharged.

After this decision, Clark & Washington started using separate bifurcated agreements for each case, and stopped using post-dated checks.

The U.S. Trustee then filed a Motion to determine whether Clark & Washington’s new approach violated the judge’s previous order. And that’s when the judge opined about how best to avoid the sin of…

Mistake #2: Not disclosing to the client

During the initial hearing for this Motion, the judge expressed two concerns. First, the judge thought the disclosures in the prepetition contract didn’t spell out the client’s options for postpetition services explicitly enough. And second, the judge noted that while there were two agreements, clients routinely signed the postpetition agreement immediately upon filing. This effectively created a single continuous process with no time for the client to carefully consider options.

To address these concerns, Clark & Washington amended its approach. First, it explicitly mentioned in the prepetition contract that the client had three options: (i) to proceed pro-se, (ii) to retain the original law firm, or (iii) to hire another law firm. Second, Clark & Washington gave their clients two weeks after filing to rescind their postpetition contract, to give clients time to carefully consider their options. And finally, Clark & Washington agreed to disclose to the client that it would continue to represent the debtor until they were allowed to withdraw, which was required by a standing Local Rule.

The judge ruled that this modified contract language addressed his concerns. In fact, the contract language blessed by this judge has become the de-facto standard for client disclosure for modern bifurcated Chapter 7s. So by adopting this language, you can avoid this mistake entirely!

But disclosure to clients is only half the story. There’s also the issue of…

Mistake #3: Not disclosing to the court

If you’re going to start bifurcating your Chapter 7s, you need to make it clear to the judge exactly what you’re doing. And that means by the time you’ve finished your disclosures, you should almost feel like you’ve over-disclosed.

If you don’t, you could end up like Attorney J. Ken Gallon of Oklahoma, who learned the hard way that judges really don’t like it when they believe you’ve botched your disclosures to the court. If that happens, you may end up defending yourself against sanctions.

Fortunately for us, this is another case where the attorney was reprimanded so strongly that it creates useful guidelines for the rest of us.

It all started on June 12, 2017, when Attorney Gallon start filing bifurcated Chapter 7s. He was filing a bankruptcy for a couple, the Gomeses, who paid him $100 for prepetition services and $400 for the filing fee and other expenses (like the credit counselling classes). He filed them the next day, on the 13th, after the Gomeses signed his postpetition agreement agreeing to pay him $1,400 for postpetition legal services.

Attorney Gallon also “factored” the accounts receivable in this case, by selling them to a third-party lender for 70% of its face value. So he received $980 (70% of $1,400) from the lender shortly after filing, in exchange for selling the receivable.

Attorney Gallon appears not to have disclosed the existence of this third-party lender to the court. When he filled out Form 2030, he disclosed that he had agreed to accept $1,500 in total, had received $100 already, and there was a balance due of $1,400. The Gomeses’ Statement of Financial Affairs also noted the $100 payment and the $400 towards bankruptcy expenses. However, Attorney Gallon did not disclose the separate existence of a third-party lender, their financial relationship, or the $980 he expected from his factor.

Attorney Gallon ended up filing 14 bifurcated Chapter 7s that were financed by the third-party lender. Then, on October 17th, Attorney Gallon attended a Disclosure of Compensation hearing in the Wright case, which the judge had scheduled for other reasons. It was during this hearing that the judge learned about Attorney Gallon’s use of a third-party lender to factor his accounts receivable.

The judge was clearly furious at this lack of disclosure. As he wrote in his opinion: “At the hearing, the Court bluntly asked Gallon to explain ‘Why wouldn’t this be disclosed?’” Attorney Gallon had the following response:

Well, it might — the reason I did not disclose it, Your Honor, in my mind, is that once — I mean, what, what is happening here is there, is a bifurcation process. So the client hires you to perform, to, to file the petition and the creditors and the verification. Then once that’s done, you have a second meeting, which is the bifurcation, where they rehire you to finish the, the schedules, statements, and all that. Then once that’s done, that’s whenever it is factored. And so it is just my way of receiving, I mean, I could collect it from the debtor instead of [the factor]. And so I didn’t, I mean, I just didn’t think it was something that I was required to disclose. It’s my receivable. It’s monies that’s owed me.

Judge Michael wrote that Attorney Gallon’s “declaration that it simply ‘did not occur to him that such disclosure was required’ is both disheartening and astonishing.” He subsequently sanctioned Attorney Gallon by ordering disgorgement of all postpetition fees collected by the third-party factor in all 14 cases.

Judge Michael highlighted what he believed were two disclosure mistakes on Form 2030. First, Attorney Gallon did not originally disclose that a third-party lender had advanced him funds for any of the 14 financed bifurcated Chapter 7s.

And second, Attorney Gallon had selected “Debtor” (rather than “Other”) on his Form 2030 when answering the question “The source of compensation to be paid to me is.” Judge Michael vehemently disagreed with this answer, as Attorney Gallon had factored his accounts receivable to a third-party lender, and it was that third-party lender who was the proximate source of funds. In Judge Michael’s opinion, Attorney Gallon should have selected “Other” for this answer. The judge rebuked the attorney for his answer, writing that “He should have known that the information provided to the Court in the Disclosure of Compensation filed in these cases was grossly misleading, if not out right false.”

Attorney Gallon could have mitigated his disclosure issues with a detailed explanation in writing of exactly how he was bifurcating his Chapter 7, along with an explanation of how he was using a third-party lender to finance the case. Indeed, the official instructions for Form 2030 state that “Additional sheets should be attached to the form as needed.”

To avoid disclosure issues with the court, it seems prudent to add these additional disclosures to any Form 2030s that you file. So after the last official question #6, you can add a #7 that explains how you’re bifurcating, and a #8 that explains how you’re financing the case with a third-party lender (if relevant). These additional disclosures might have at least downgraded the judge’s charge that Attorney Gallon’s disclosures were “grossly misleading.”

Beyond proper disclosure to the court, we also need to make sure that we avoid the mistake of…

Mistake #4: Not passing the “reasonableness” test

If you’re considering offering zero-down bifurcated Chapter 7s, you have to worry about disgorging your fees if they don’t pass the “reasonableness” test.

Unfortunately, zero-down bifurcated Chapter 7s do find it harder to pass this reasonableness test, since a zero-down bifurcated 7 implies that prepetition fees have been waived. In other words, since you are only charging fees for the postpetition work, the reasonableness test will only consider the value of the postpetition work (and will ignore the value of the prepetition work).

Attorney Cynthia Carroll in Delaware faced this test when a U.S. Trustee requested a 329 hearing on reasonableness on June 12, 2018. In this case, Attorney Carroll had filed a bankruptcy for debtor Ndon on February 16, 2018. The case was uneventful, and Ms. Ndon received her discharge on June 8, 2018.

Attorney Carroll had done a zero-down bifurcated Chapter 7 for Ms. Ndon, including waiving prepetition fees and even covering the filing fee of $335 and other costs. Attorney Carroll seems to have done everything properly, including using the disclaimer language blessed in the 2012 Walton v. Clark & Washington opinion. Ms. Ndon chose to retain Attorney Carroll for the sum of $2,832 plus costs, paid with postpetition installment payments.

Attorney Carroll’s justification for her fees started with her usual flat fee of $1,765 for a Chapter 7 individual debtor, which includes the $335 filing fee and other costs that she also financed. Also, Attorney Carroll filed a motion to redeem debtor Ndon’s vehicle, a service for which she typically charges a flat fee of $750. The total sum of those two services was $2,515.

Judge Laurie Silverstein concluded that this $2,515 was a reasonable value for Attorney Carroll’s legal services. This means that the cost of $2,832 exceeded reasonableness by about $320, and the court ordered debtor Ndon’s fee reduced by that amount.

On its face, this ruling seems to be a loss for Attorney Carroll, and thus, a loss for the cause of zero-down bifurcated Chapter 7s in general. However, there is an internal inconsistency in this ruling that highlights a path to total victory. Specifically, to assess the reasonableness of Attorney Carroll’s car redemption motion, for which she charged a flat fee of $750, the judge notes that “Ms. Carroll’s time records reflect that she spent 5.25 hours in connection with the redemption motion, which at her normal hourly rate of $325 per hour results in a fee of $1,706.25.” Since this was well in excess of $750, the judge ruled the price of that motion reasonable.

The simple analysis Judge Silverstein applied there is called the “lodestar method” which calculates the value of a lawyer’s work as “reasonable hours times a reasonable hourly rate.” However, the judge didn’t perform this same analysis on Attorney Carroll’s postpetition bankruptcy legal fees!

Attorney Carroll could have justified her fees by establishing the following:

  • Her postpetition attorney’s fees were $1,747, which is $2,832 minus the $750 for the car redemption minus the $335 court filing fee.
  • Her hourly rate was $325.
  • She need only have worked on this case for 5.4 hours ($1,747 divided by $325/hour) to justify reasonableness.

Working 5.4 hours on a bankruptcy filing seems fairly easy to justify, particularly when postpetition meetings with the client and 341 meeting attendance is included.

Beyond that, Attorney Carroll prevailed on all the other issues, including the legal basis for bifurcating Chapter 7s, and even the use of a third-party lender to whom she factored her accounts receivable. As the judge said, “But, while the UST has raised the factoring arrangement as well as the postpetition nature of the fees, the UST’s real issue here, as expressed at the argument and with the relief sought, is with what fee is reasonable.”

In other words, as long as your fees are reasonable, you won’t have to disgorge your fees on reasonableness grounds! Of course, you also have to avoid the fifth and final mistake, which is…

Mistake #5: Not paying the court first

The court filing fee needs to be paid before you collect any postpetition payments from the client. This is mission critical. If you’re forewarned, it’s easy to avoid collecting attorney’s fees from a client before the court filing fee is paid in full. But it’s easy to collect a single installment payment from a client too soon, and screw this up.

Remember our poor Attorney Gallon from the Wright case? He also ended up tripping over this issue when he worked with a financing company that collected payments from his clients before the court filing fee was paid.

For instance, Attorney Gallon filed an Installment Application for Ms. Wright’s Chapter 7 to pay the filing fee of $335 in four equal monthly installments. The bankruptcy was filed on September 28, 2017, and Attorney Gallon’s third-party lender collected its first payment from Wright on October 15th, well before the final installment of Wright’s filing fee was paid on December 6th.

The judge ruled that this meant that Attorney Gallon had gotten paid before the court. This violated Rule 1006(b)(3), which states that “All installments of the filing fee must be paid in full before the debtor or chapter 13 trustee may make further payments to an attorney or any other person who renders services to the debtor in connection with the case.” The judge found this fact pattern in eight of Attorney Gallon’s cases.

Attorney Gallon could have avoided this issue in several ways. First, since Attorney Gallon was using a third-party financing company, he should have received an upfront advance shortly after the case was filed on September 28th. He could have used this advance to immediately pay the court filing fee in full, well before the first installment payment made by the client on October 15th.

Second, he could have required his client to pay the filing fee directly, so the court gets paid immediately, making it impossible for him to get paid before the court.

Finally, if he was self-financing the case, he could have deposited client payments into an IOLTA account and disbursed the court filing fee installments from that account. That way, he could have avoided actually “receiving” a payment from the client for attorney’s fees.

Attorney Gallon had already lost his case and had to disgorge his fees for Section 329 disclosure violations, but the judge’s ruling that he had also violated Rule 1006(b)(3) opened him up for additional sanctions. Fortunately for Attorney Gallon, the judge noted that “all required Court filing fees were eventually fully paid, either by the debtors or Gallon, and each of the debtors received their discharge.” So, the judge showed mercy and ruled that “despite the authority to do so, the Court will not impose additional sanctions.”

Of course, you don’t want to have to depend on a merciful judge to avoid sanctions, so this is another bullet you should dodge.

So that’s the fifth and final mistake to avoid. And as long as you can avoid those five mistakes, you should proceed to a flawless victory!

That’s what Attorney Russell B. Weekes of Capstone Law in Utah was hoping for after an aggressive U.S. Trustee filed a motion for sanctions against him for daring to use a bifurcated zero-down Chapter 7 to help a poor debtor file bankruptcy.

Many preceding cases had been lost when attorneys committed one of the five minor violations we’ve discussed. However, Attorney Weekes avoided being cited for any of these five mistakes:

  1. First, he respected the bifurcation. He split his agreement into prepetition and postpetition agreements, and evolved his bankruptcy process thoughtfully to respect the petition filing date.
  2. Second, he disclosed properly to the client, including the “three options” disclosure in his prepetition contract, and was good on all his other client disclosures.
  3. Third, he disclosed properly to the court. His Form 2030 and Schedule J had everything on it.
  4. Fourth, his fees were reasonable. In fact, Attorney Weekes provided billing records showing that his postpetition services—excluding time spent dealing with the Debtor’s installment payments—had a lodestar value of $2,240, which exceeded the $2,007 billed to the client. Noting that Mr. Hazlett had indeed received a successful discharge, and that the amount billed was less than this lodestar value, the judge found that “the Debtor received reasonable value for the fee paid.”
  5. Fifth, well, actually, Attorney Weekes may have violated Rule 1006(b)(3)! However, nobody seems to have noticed.

Because Attorney Weekes wasn’t dinged for any of these five mistakes, the judge was able to make a more fundamental ruling on the U.S. Trustee’s allegation that “the bifurcation of bankruptcy services into pre-petition and post-petition fee agreements” itself was improper.

In April 2019, Judge Kevin R. Anderson of Utah ruled on this motion and found decisively for the concept of bifurcation, noting that while there were no Tenth Circuit cases supporting this approach, cases from other jurisdictions (including the cases we’ve discussed) “supported, or at least acquiesced to, this approach to enable cash-challenged debtors to retain and pay for legal counsel to assist them in achieving a Chapter 7 discharge.” And as a result, “Based on these cases, the Court finds that Weekes had a reasonable, legal basis to employ bifurcated fee agreements when clients were unable to pay a full retainer prior to their bankruptcy filing.”

The U.S. Trustee also raised another fundamental concern relating to Attorney Weeke’s “use of a third-party financing company to factor and collect the fee.”

Attorney Weekes had attempted to comply with disclosure requirements by having clients sign a separate agreement to acknowledge that a third party will be purchasing the client’s accounts receivable, as well as directly debiting their bank account for payment for a period of time. The judge ruled for Attorney Weekes in this count, too, and blessed the modern approach to financing a bifurcated Chapter 7 with a third-party lender.

This creates a favorable precedent in the Tenth Circuit for bifurcation (and for financing bifurcated Chapter 7s), as well as offering the sort of model opinion that other jurisdictions might cite favorably.
This is as definitive a ruling as we are likely to see for some time. In the meantime, avoiding these five mistakes should go a long way to bulletproofing your zero-down bifurcated Chapter 7s!

Okay. So that’s the end of chapter two of my book.

if you’d like to read more about any of the cases that I mentioned, I’ve written a case last summary of the 20 cases that cover issues relevant to zero down bankruptcies. And again, you can download that for free. Just go to

Again, that’s all one word. So it’s c-a-s-e-l-a-w with no spaces or dashes. And you’ll be able to sign up to download my case law summary. And in addition to the writeup that I did, I’ve also included the full text of every opinion in the free download.

Okay, thanks for listening, and I’ll see you in the next episode!