THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

independent counsel, and (c) the client consents.³¹⁵

1. A prepetition arrangement to pay a flat fee for prepetition services in installments postpetition has been held unenforceable because the obligation is discharged, and collection efforts are a violation of the automatic stay.³¹⁶ Such an agreement also has been held to create a conflict of interest in an individual bankruptcy case.³¹⁷ While installment arrangements do not per se create a conflict, upon the petition filing the attorney becomes a self-interested creditor in conflict with the debtor client, who is seeking discharge of prepetition obligations. Contractual remedies for nonpayment of installments and failure to advise the debtor client about caselaw holding such retainers dischargeable illustrate the conflict. There is a contrary minority view.³¹⁸
2. One circuit court has recognized the practical difficulty of paying attorneys' fees in small consumer cases, and held that postdated checks to pay for postpetition services only, under a prepetition contract, is permissible.³¹⁹ Another circuit held that those who cannot pay in full prepetition can tender a small retainer for post-petition work, then hire and pay counsel for additional work postpetition.³²⁰ The newest circuit court decision follows Bethea on the point that debts for prepetition attorneys' fees are dischargeable but says that postpetition attorneys' fees are not dischargeable, with no analysis of fees being paid pursuant to a prepetition contract.³²¹ Some courts also allow the reaffirmation of pre-petition attorney's fees when approved by the court, recognizing the attorney must make clear to the client the adversity in this regard.³²² These circuit courts have not come to grips with the practical problems chapter 7 bankruptcy attorneys face. If the lawyer receives a prepetition retainer, it cannot be used for postpetition services unless requested by the trustee and approved by the court, and the unearned retainer balance on the petition date is property of the estate for the trustee to administer.³²³ If the debtor receives a loan postpetition to pay attorneys' fees, the loaned money is also property of the estate, that cannot be used for services only benefiting the debtor.³²⁴ If the attorney and client agree prepetition on retention that will continue on agreed terms postpetition, the contractual obligation is discharged, the attorney is stayed from enforcing it, and the court may not