One major hurdle in developing a student loan discharge practice is: how do I get paid for my services? There is admittedly some asymmetry to asking your client to pay $1500 for a standard Chapter 7 to wipe out all their debts, and then telling them it may cost three or four times that amount to simply deal with their student loans. But now is the time to learn to deal with this issue. With 44 million student debtors in the U.S., the likelihood is only going to increase that your average client will have substantial student debt problems.
The first thing to know is that an adversary proceeding is not as much work as you may fear. And the templates provided by the Student Loan Analyzer should significantly cut down on the amount of labor required. We have provided template complaints, motions to reopen, discovery requests, motions for summary judgment, and proposed findings of fact and conclusions of law. All you really need to do is fill in your client’s specific facts, attend a hearing or two, and negotiate with opposing counsel to get your client a good result.
We recommend talking to your client about three ways to compensate you for your services:
- Charge by the hour. This is obviously the cleanest and most commonly practiced method of charging a client for litigation services. If your client is employed and can afford it, this may be the easiest way to bill for your time.
- Charge a flat fee. You may not be comfortable charging a flat fee until you’ve done a case or two and determined how long it will take. I usually recommend charging somewhere around $3,000 to $5,000 depending on how many creditors are involved (talking to opposing counsel is often the most time-consuming element). Once you get comfortable with the process and procedures, you should be able to handle an adversary proceeding in about 15-20 hours (provided you settle before trial). However, be sure that whatever flat fee you are charging comports with the ethical requirements in your home state. Some states allow flat fee payments to be deposited directly into your business account—other states treat flat fee payments as retainers and must be deposited in the client trust account UNTIL the attorney has earned the money, either through hourly work, or else by completion of defined objectives as described in the engagement agreement.
- Reverse contingency fee. If you are going to erase $100,000 in private student debt and your client cannot afford a flat fee or hourly rate, it may be worth talking to your client about paying you based on the amount of debt you discharge either at trial or through settlement. Like all contingency arrangements, this ensures that your motives and your clients are in sync. I usually recommend asking your client to pay you 10-15% of the debt you discharge and then putting them on a payment plan to satisfy the obligation. Reverse contingency fees are generally permitted under the ethical rules provided it is “reasonable” but be sure to check your state’s specific requirements.
However, you and your client choose to arrange payment, talk to your client about the benefit you are providing. Not only are you going to likely erase a lot of debt, sometimes, more importantly, you are going to reduce or eliminate the interest rates, and get your client on a monthly plan they can afford. This will enable them to stay current going forward so they can rebuild their credit and avoid harassment.