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Attorney must turn over $10,000 from pre-bankruptcy services

As some Kentucky residents know, Chapter 7 bankruptcy involves the liquidation of a debtor's non-exempt assets with the proceeds being distributed to creditors. An August Massachusetts case involved the receipt of funds by a debtor after a filing had been made.

On Aug. 17, the judge ordered a lawyer who filed for bankruptcy to turn over $10,000 that he received for legal services because the payments were for services provided prior to bankruptcy and thus considered property of the estate. The lawyer represented a company through numerous legal issues. Charging by the hour, the lawyer generally invoiced the company each month. Following his bankruptcy filing, he invoiced the company for $291, $2,070 and $8,924 on separate occasions.

The Chapter 7 trustee filed a motion with the bankruptcy court to have the lawyer relinquish the $10,000 in payments. While the trustee argued that the payments were related to legal services provided before the bankruptcy filing, the lawyer argued that they were from an account for legal services provided after the filing.

However, the court did not find the lawyer's argument credible. It found no indication that the lawyer discussed payments or a retainer for services provided after the bankruptcy proceedings. The court concluded that he continued representing the company because it and the court requested that he do, rather than because the company paid him more money.

State and federal laws outline the types of assets that are not subject to liquidation in a Chapter 7 bankruptcy. An attorney can discuss these matters while also explaining the eligibility and other requirements imposed by the chapter.

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