In re Slabbinck, 482 B.R. 576 (Bankr. E.D. Mich. 2012)
Decided November 1, 2012 by a bankruptcy court in Michigan in the Sixth Circuit
In this case, the bankruptcy attorney used a two-contract approach consistent with modern bifurcation practices.
Despite this, the UST still argued that it was improper to unbundle the legal services into pre-petition services and postpetition services.
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To clarify, “unbundling” is just a shorthand way to refer to limitations on the scope of services, such as only representing a debtor for (say) the prepetition portion of a bankruptcy.
The court ruled for the debtor’s attorney:
[I]f the attorney’s legal services for an individual debtor are unbundled between prepetition services and post-petition services, in strict conformance with the [Michigan Rules of Professional Conduct], such unbundling of legal services does not by itself warrant any relief under §329 of the Bankruptcy Code.
More generally, the court generally supported the concept of bankruptcy bifurcation:
[T]he Court understands that some individual debtors simply cannot afford to pay up front for all of the services required to both file and complete a Chapter 7 case prior to the time that they file their Chapter 7 bankruptcy case. The law does not prohibit such individuals from paying a smaller fee to an attorney to get their case filed and then, once the case is filed, either proceeding pro se or entering into a new agreement either with the same attorney or with another attorney to represent them in completion of their case, with the payment for any postpetition legal services to be paid out of such individual’s future earnings.
As with several other cases involving unbundling, this case hinged on a particular state’s Rules of Professional Conduct, as well as the Local Rules in a particular district. It’s a good exploration of how local issues can affect bifurcation.
To download this case brief, 20 other case briefs in our Bifurcation Case Law Summary, and the full text of all opinions, click the button below: