Steveland II M P Stewart
No matter the difficulties a debtor may be facing, the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure do not allow payment for prepetition services after a chapter 7 bankruptcy petition has been filed. The Supreme Court has held that attorneys’ fees for work done on behalf of a chapter 7 debtor during the bankruptcy case cannot be treated as an administrative expense and paid from estate assets.3 Lamie v. United States Trustee, 540 U.S. 526 (2004). Similarly,
The Code and subsequent case law make it clear that a chapter 7 lawyer simply may not be a creditor for unpaid services provided before the case is filed. It is this current state of the law that creates a problem for both the chapter 7 debtor and her lawyer. As Judge Laurel Isicoff explained,
currently there are four payment options available to potential chapter 7 debtors who wish to retain counsel, each with its own set of problems and challenges: (1) delay filing the case until all the fees are paid up front; (2) the lawyer can file the chapter 7 case without getting paid in full up front and hope that the debtor will voluntarily pay additional fees postpetition; (3) the attorney can bifurcate the legal services; or (4) the debtor can file a chapter 13 case instead so that the fees may be paid postpetition.
In re Brown, 631 B.R. 77, 85 (Bankr. S.D. Fla 2021); see also Final Report of the ABI Commission on Consumer Bankruptcy, § 3.01, Chapter 7 Attorney’s Fees at 89 (American Bankruptcy Institute, 2017-2019).
It is with this backdrop that the court analyzes the Semrad Law Firm’s (Semrad)5 bifurcated fee arrangements with chapter 7 debtors. As explained below, the court finds that Semrad’s fee arrangement violates Sections 526 and 528 of the Code and Local Rule 2016-1. The court orders disgorgement of any fees Semrad received from Arnetria Bell, Cierra Blackwell-Richardson, and Steveland Stewart II.
Background
Nearly all Semrad chapter 7 cases are filed with no money down, a benefit advertised heavily as “$0 Up-Front Bankruptcy” on its website.6 The court reviewed several months of
This court is mindful that prior to filing any petition for a client, a lawyer representing a potential debtor must do the following:
- Meet the client and assess whether bankruptcy is appropriate and determine what type of bankruptcy is needed (chapter 7, chapter 13, chapter 11, or perhaps just a cease-and-desist letter);
- Determine whether the potential client is eligible for bankruptcy relief;
- Obtain information concerning assets, liabilities, and additional information to prepare schedules and the statement of financial affairs;
- Ensure that debtor-client takes the creditor counseling course required under
11 U.S.C. § 109(h)(1) ; and - Prepare debtor-client for responsibilities that must be undertaken to obtain discharge.
The three cases consolidated for review of the bifurcated fee arrangement are remarkably similar and although the court is addressing the disclosures made in Ms. Bell’s case, the pattern the court discovered in Ms. Blackwell-Richardson’s and Mr. Stewart’s cases are
entering into and sign[ing] an agreement after the filing of your bankruptcy case to pay the Firm for services rendered after the filing of your case. If you refuse to enter into and sign the agreement within ten (10) days after the filing of your case, the Firm will file a motion to withdraw from representing you.
(The Semrad Law Firm, Dkt. 1, ¶ 2). Ms. Bell and the other debtors all signed this agreement prior to their petition dates (First Agreement). The First Agreement states that Semrad will “be representing you in all aspects of your Bankruptcy case filed under Chapter 7 of the United Stated [sic] Bankruptcy Code except for any adversary proceedings.” Id. at ¶ 1. The First Agreement also states that after the case is filed, each debtor will be required to pay either $2,462 in Ms. Bell’s and Mr. Stewart’s case, or $2,640 in Ms. Blackwell-Richardson’s case. If this amount is not paid, Semrad will file a motion to withdraw. Id. at ¶ 7. All three debtors signed the First Agreement confirming post-petition payment.
Ms. Bell signed the First Agreement on December 4, 2025, three days prior to the petition date. (The Semrad Law Firm, Dkt. 1). The First Agreement lists five tasks taken on prepetition. It then lists nineteen tasks the firm will provide post-petition, but only if Ms. Bell pays $2,462.00. Paragraph 8 of the First Agreement states that Semrad will not represent the debtor unless the debtor agrees to waive any conflict that may arise because the debtor is required to pay post-petition fees. Id. at ¶ 8.9 Finally, paragraph 9 states, “This agreement constitutes the entire agreement between you and the Firm. Any previous discussions or agreements are not valid or enforceable unless contained in this document.” Id. at ¶ 9.
In Ms. Bell’s case, Semrad filed an Amended Disclosure of Compensation, or Amended Form 2030 (Amended Form), nearly two months later (Dkt. 15). The Amended Form included another agreement (Second Agreement) and stated that the fee charged was now $2,462.00. The listed tasks on the Amended Form were the same as in the initial Form 2030 but was now dated December 9, 2025 (five days after the first Form). The Second Agreement was attached listing the tasks that Semrad would do and stating that Semrad “will forebear from requesting to withdraw from representing Client(s) so long as Client(s) signs this agreement within ten (10) days of the filing of the Case.” (Recitals, Dkt. 15).10
After discovering this pattern of filing amended forms and a requirement to execute the Second Agreement, the court requested an explanation. A hearing was held on March 25, 2026. Semrad and the Office of the United States Trustee subsequently briefed the matter.11 After reviewing the arguments of the parties, the papers filed, and conducting its own research, the court finds that Semrad’s fee arrangement in these cases and many others violates Local Rule 2016-1 and sections 526 and 528 of the Bankruptcy Code.
A. Semrad’s Bifurcated Fee Arrangement
Semrad states that it represented each debtor on a bifurcated fee basis, which is “permissible so long as certain client-protective guidelines are followed.” (Semrad’s Response to Order, Dkt. 30 at 1). Citing several cases,12 Semrad argues that bifurcated fees are allowed if “the bifurcated structure [is] clearly disclosed to the client, the client [has] a meaningful opportunity to choose whether to proceed under the second agreement, the attorney . . . remain[s] counsel of record through withdrawal, and the postpetition fee [is] reasonable and correspond[s] to genuine post-petition legal services.” Id. at 2.13 Semrad has accurately captured the requirements several courts have laid out, but “[t]he trick here is that the post-petition contract must really be a post-petition contract . . . [L]egally operative events—[] offer, acceptance, and exchange of consideration . . . —must in fact occur after the date of the Chapter 7 filing to qualify as a claim arising post-petition and falling outside the scope of § 362(a)(6).” In re Griffin, 313 B.R. 757, 769–70 (Bankr. N.D. Ill. 2004). Again, Semrad states it will withdraw if the Agreements are not signed.
Semrad states that it consults with prospective clients for “approximately thirty minutes” during which its “most experienced attorneys spend a substantial portion of their time meeting with prospective clients, advising them regarding their options under the Bankruptcy Code, evaluating eligibility, and helping determine whether a bankruptcy filing
B. Semrad’s Bifurcated Fee Arrangement Violates §§ 526 and 528 of the Code and Local Rule 2016-1.
The initial letter and disclosure contain contradictory statements which mislead the debtor. The scope of representation cannot both be “in all aspects of your bankruptcy case” and conditional. Semrad’s initial Form 2030 states that it is taking on representation for the entire case, but that representation is also conditioned on an agreement to pay fees post-petition. How can Semrad represent debtors in “all aspects of their case” but condition this upon signing a post-petition agreement? The promise to represent clients in all aspects is conditional on payment of $2,462 or $2,640 after the filing. If Ms. Bell and the other debtors do not agree, Semrad will not represent them and will withdraw, leaving the debtors without counsel. This creates “a material inconsistency that makes it impossible to tell whether or when [Semrad] intended to provide services in the case . . . [and] justifies finding that the contracts are void.” In re Siegle, 639 B.R. 755, 759 (Bankr. D. Minn. 2022) (“Agreements cannot be sufficiently ‘clear’ if they make inconsistent statements about what Applicant will or will not do for Debtor in her case.“). It is clear that Semrad is not taking on representation in all aspects of a client’s bankruptcy case, making the First Letter Agreement inaccurate.
Perhaps more problematic is that Semrad’s prepetition contract tries to circumnavigate the prohibition contained in
While the court recognizes lawyers’ need to receive payment for work done on behalf of clients, the arrangement that Semrad is using violates the Code and the Local Rules. The preparation of schedules after counseling a client about whether a bankruptcy filing is in her best interest, which type of bankruptcy is appropriate, and helping the client understand the types of disclosures that must be made is extremely important and a time-consuming endeavor. Although Semrad minimizes the time that this takes, this court is mindful that to do all this work correctly, time is needed, and this work is the most time-consuming task of the entire representation. The tasks that occur post-petition are not minimal but certainly in many cases will only consist of representation at the meeting of creditors required under
As Judge Isicoff stated in Brown, firms that enter into bifurcated fee agreements with clients must give the debtor “a separate disclosure form that discloses he or she is being provided the option to choose the bifurcated fee arrangement, and whether the bifurcated fee arrangement will have a different cost than a flat fee arrangement paid in advance of the filing.” In re Brown, 631 B.R. at 100. At first, it appears that Semrad is complying with this requirement by requiring the Second Agreement be signed a few days after the First Agreement.17 Ms. Bell’s signature appears to be electronic, and there is no date next to her signature, so it is not clear when she actually signed the agreement. Worse, the Semrad signature, if one can call it that, is illegible and does not resemble any other wet signature, such as Mr. Shank’s. Additionally, it appears to be the exact same marking as the one appearing on Form 2030 and in many other filings (Dkt. 15). This is odd as Mr. Shanks is
Although the Second Agreement states that it was signed on December 9, in Ms. Bell’s case, it took two months to file the Amended Form.19 This is a blatant violation of Local Rule 2016-1,20 which states, “An agreement signed after the disclosure statement has been filed must be filed within 14 days as a supplement to the disclosure statement.” Local Rule 2016-1, N.D. Ill. 2024. The court does not receive notice when an amended form is filed, and it cannot be tasked with combing through each of its thousands of cases to determine which are taken on a no money down basis with a contingency that would cause counsel to withdraw and leave the client unrepresented. The Amended Form 2030 appears to be slipped onto the docket with no notice to anyone and is often filed after the 341 meeting and just prior to discharge.
The threat of withdrawing when post-petition payments are not made is simply unacceptable. Failure to pay attorney’s fees, on its own, is not enough for bankruptcy courts to permit an attorney to withdraw. In re Edsall, 89 B.R. 772, 776 (Bankr. N.D. Ind. 1988) (“[W]here the attorney-client relationship is unimpaired by the actions of the client, so that counsel is still able to effectively represent the debtor, the debtor‘s failure or inability to pay the attorney‘s fees does not constitute cause justifying withdrawal, unless the unpaid fees
C. The Court Must Follow the Language of the Statute.
Semrad states that its compensation scheme “addresses a real access-to-justice problem in consumer Chapter 7 practice” for “debtors whose financial distress drives them to seek bankruptcy relief do not have those funds available.” (Semrad’s Response to Order, Dkt. 30 at 2-3). As previously discussed, the court is mindful that many debtors simply do not have funds to pay a lawyer for representation in a chapter 7 case. Prospective debtor clients may be in financial and emotional crisis and often have struggled with financial precarity for years prior to seeing a lawyer and filing a bankruptcy petition.21 They likely need a discharge but have no extra cash to pay upfront. That being said, as the Seventh Circuit points out in Bethea, an “argument about what makes for good public policy should be directed to Congress; the judiciary‘s job is to enforce the law Congress enacted, not write a different one that judges think superior.” 352 F.3d at 1127-28. The court is not in the position to legislate and must follow the law that Congress has laid out.22
Conclusion
Semrad’s bifurcated fee arrangement violates Sections 526 and 528 of the Code and Local Rule 2016-1. Semrad is ordered to disclose the amount of post-petition fees received and disgorge all post-petition payments, if any, received from Ms. Bell, Ms. Blackwell-Richardson, and Mr. Stewart. A further status will be set for compliance.
Dated: July 1, 2026
Honorable Deborah L. Thorne
United States Bankruptcy Judge