## Facts

- A Chapter 7 debtor retained bankruptcy counsel under a bifurcated arrangement consisting of two separate flat-fee contracts.
- Prepetition, the debtor paid $300 for limited services that included counseling and filing a skeletal Chapter 7 petition.
- Postpetition, the debtor signed a second agreement for approximately $1,135–$1,185, payable in installments, covering completion of schedules and other postpetition services; counsel advanced the filing fee and installment payments reimbursed that advance first.
- The compensation disclosure reflected the two fees, but the debtor did not schedule any debt owed to counsel.
- The bankruptcy court initiated a sua sponte review under 11 U.S.C. § 329 after noticing similar disclosures in multiple cases handled by the same attorneys.
- The U.S. Trustee participated and challenged the arrangement as potentially shifting compensation to the postpetition period to avoid dischargeability limits on prepetition attorney-fee claims.
- It was undisputed that the total fees were reasonable, the debtor gave informed consent after the agreements were explained, and counsel did not induce the debtor to incur separate debt to pay fees.

## Issues

1. Whether Chapter 7 counsel may limit representation to prepetition analysis and filing a skeletal petition, with continued representation offered under a separate postpetition agreement payable in installments.
2. Whether a bifurcated fee structure impermissibly converts dischargeable prepetition attorney-fee obligations into enforceable postpetition debt.
3. What disclosures and client-consent protections are required for bifurcated Chapter 7 fee arrangements to comply with § 329 and Bankruptcy Rule 2016.

## Decision

- The court held that limited-scope, bifurcated Chapter 7 representation is permissible if structured and implemented properly.
- The court rejected a per se rule against bifurcated agreements, but required that postpetition payments be tied to a valid postpetition contract supported by postpetition services (new consideration), not payment for prepetition work.
- The court emphasized that fee allocation between prepetition and postpetition stages must reasonably track the work performed in each stage and not be a device to evade discharge of prepetition fee claims.
- The court required clear documentation, informed consent, and transparent disclosures sufficient for § 329 review and Rule 2016 compliance, and warned that noncompliance may result in fee reduction or disgorgement.

## Legal Principles

- Bankruptcy courts have authority under 11 U.S.C. § 329 to review debtor’s-counsel compensation arrangements and order return of unreasonable or improperly structured fees.
- In Chapter 7, an obligation incurred prepetition to pay attorney’s fees is generally a dischargeable claim; attempts to collect it postpetition are subject to close scrutiny.
- A postpetition fee obligation may be enforceable only if it arises from a bona fide postpetition agreement supported by postpetition services, rather than a recharacterization of prepetition compensation.
- Limited-scope representation in bankruptcy is allowed only with full explanation of scope and consequences and the debtor’s informed consent.
- Accurate, complete disclosure of compensation terms under Rule 2016 and related filings is mandatory; inadequate disclosure may independently justify remedies affecting compensation.

## Conclusion

The court permitted bifurcated Chapter 7 fee agreements in principle, but only where the prepetition and postpetition scopes are real and fairly priced, the debtor gives informed consent after full explanation, and disclosures allow meaningful § 329 oversight without using contract form to sidestep discharge rules for prepetition fees.


In re Carr, 613 B.R. 427 (Bankr. E.D. Ky. 2020)