There’s No Doubt, Disclose Your Fees
In a recent decision, the U.S. Court of Appeals for the Third Circuit reversed the U.S. District Court for the District of New Jersey and reinstated the Bankruptcy Court’s judgment sanctioning a law firm (Law Firm) for pursuing a collection action against two clients for undisclosed fees in connection with a Chapter 7 case.
05.05.25
In 2023, the New Jersey Bankruptcy Court sanctioned Law Firm for failing to comply with the Bankruptcy Code, which requires the disclosure of fees both originally charged and for services rendered (Sanctions Order). The Sanctions Order called for the disgorgement of fees collected by Law Firm and cancellation of its remaining fee agreement with the Debtors.
As provided by the Third Circuit, it is a “‘plain and simple rule: attorneys must inform the bankruptcy court of their compensation and promptly update the filing if their fees change.” In re Aquilino, 2025 WL 1187080, at *2 (3d Cir. Apr. 24, 2025) (quoting In re Dordevic, 62 F.4th 340, 342 (7th Cir. 2023)) (cleaned up and internal quotation marks omitted).
Failure to comply with this rule may result in the loss of thousands for a firm, as it did for Law Firm. While the initial fee agreement only called for a $3,500 flat fee, Law Firm ultimately incurred about $200,000 throughout the pendency of the bankruptcy case (which was later negotiated down to $113,000). In other words, you are better off disclosing than not.
Key Takeaway: It is not sufficient to argue that your firm has “always filled out [its] . . . disclosures forms” in a certain way, as “pleading (questionable) past practice neither displaces the Code’s requirements nor establishes compliance with those requirements.” Id. at *9 (cleaned up).
Co-authors Carol Ann Slocum, partner, and Alyssa Radovanovich, associate, are members of the Bankruptcy & Restructuring Department at Klehr Harrison.