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Bankruptcy Court Held Fee Agreement Providing Attorney’s Lien on Exempt Personal Property to Secure Post-Petition Payments Was False and Misleading

By Christopher Harayda posted 12-19-2022 21:16

  
BANKRUPTCY BULLETIN

In In re Turner, Case No. 22-41570 KLT (Bankr. D. Minn., Dec. 2, 2022), Judge Tanabe issued another decision taking aim at consumer debtor attorneys’ efforts to provide post-petition payment plans to debtors.  The fee agreement at issue stated that the debtor’s attorney would take an attorney’s lien under Minnesota Statutes § 481.13 against some of the debtor’s personal property to secure payment of the $1,647 flat fee.  Because the attorney believed the flat fee was secured by a lien on the personal property, which would survive a bankruptcy discharge, the attorney gave the debtor an option to pay the flat fee over time, including after the commencement of the case.

 Interpreting Minnesota’s exemption statutes, the Court determined that an attorney’s lien cannot attach to personal property that is exempt under Minnesota law.  The Court further stated that the personal property described as collateral in the fee agreement was exempt property under Minnesota law.  As a result, the Court found that the attorney’s fee agreement included false and misleading statements about the existence and effect of an attorney’s lien in the debtor’s personal property.  This violated the requirement of 11 U.S.C. § 526(a)(2) that bankruptcy attorneys not make untrue or misleading statements to consumer debtors.  The Court then applied § 526(c)(1) to hold that the fee agreement was void and could not be enforced by the attorney.

 Editors-in-Chief
C.J. Harayda, Stinson LLP
David M. TanabeWinthrop & Weinstine, P.A.

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