U.S. Department
of Justice
Bifurcated Fee Enforcement Guidelines
As the bankruptcy “watchdog,” the United States Trustee Program (USTP) works to protect and preserve the integrity of the bankruptcy system, including by promoting fair access for and fair treatment of all participants.
The Bankruptcy Code generally prohibits the postpetition payment of attorney’s fees arising from prepetition retention agreements in chapter 7 cases. Bifurcated fee agreements are an alternative structure to the traditional attorney’s fee model that some have suggested is a barrier to debtors who are unable to pay their attorney’s fees in full before filing. There are differing views among courts and stakeholders in the bankruptcy community on the propriety of bifurcated agreements, and the USTP works to balance the worthy goal of promoting access to the bankruptcy system against the risk that bifurcated fee arrangements could harm debtors if not properly structured.
The memorandum posted below provides general guidelines for USTP personnel to follow in evaluating bifurcated fee agreements in individual chapter 7 cases. It is the USTP’s position that, absent contrary local authority, bifurcated fee agreements are permissible, provided they do not harm debtors or the integrity of the bankruptcy system. The guidelines generally provide that attorney’s fees under bifurcated agreements must be fair and reasonable, that attorneys must provide adequate disclosures to their clients and obtain their fully informed consent to a bifurcated agreement, and that attorneys must make adequate public disclosures in compliance with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.