Attorney Fees in Japanese Debt Restructuring Cases: What Are the Typical Structures and How Are They Secured?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

When individuals or businesses in Japan face financial distress and seek legal assistance for debt restructuring, a primary concern for both the client and the lawyer is the matter of attorney fees. It presents a paradox: how does a party struggling with debt afford the legal expertise necessary to navigate complex resolution procedures? Japanese law and legal practice have developed various structures and mechanisms to address this, aiming to ensure access to justice while providing fair compensation for legal professionals. This article explores the typical attorney fee arrangements in Japanese debt restructuring cases, how these fees are secured, and the regulatory landscape governing them.

General Principles of Attorney Fees in Japan

Historically, attorney fees in Japan were heavily regulated by bar association fee schedules. However, a significant liberalization occurred on April 1, 2004, when these mandatory fee schedules were abolished. Since then, lawyers have generally been free to set their own fees based on agreement with their clients.

Despite this liberalization, many local bar associations still publish "guideline" or "model" fee structures, which often serve as a reference point for both lawyers and clients, particularly for common types of cases like debt restructuring. Furthermore, the Japan Federation of Bar Associations (JFBA) has established specific regulations for certain aspects of debt restructuring fees to prevent excessive charges and protect vulnerable clients.

A fundamental principle, especially in debt restructuring, is transparency. Lawyers are expected to clearly explain their fee structure, the services covered, and any potential additional costs to the client before an engagement is formalized. Given the client's financial situation, this discussion also invariably covers how such fees can be practically paid.

Fee Structures by Procedure Type

Attorney fees in debt restructuring cases in Japan typically consist of several components: a retainer fee (chakushukin - 着手金), a success fee (hōshūkin - 報酬金), and actual expenses (jappi - 実費). The specifics can vary significantly depending on the type of procedure undertaken.

1. Negotiated Restructuring (任意整理 - Nin'i Seiri)

Negotiated restructuring is an out-of-court process where the lawyer negotiates directly with creditors on the debtor's behalf.

  • Typical Fee Components:
    • Retainer Fee (Chakushukin): This is an upfront fee paid to the lawyer to commence work. For negotiated restructuring, it is often calculated on a per-creditor basis. For example, past guidelines from the Tokyo Bar Associations suggested a retainer of around ¥21,000 (plus consumption tax, which was 5% at the time of the referenced guideline) per creditor. Current fees will vary and reflect the current consumption tax rate (10% as of 2025).
    • Resolution Success Fee (解決報酬金 - Kaiketsu Hōshūkin): This fee is payable upon successfully reaching a settlement agreement with a creditor. It might be a fixed amount per creditor, often similar in value to the retainer fee.
    • Reduction Success Fee (減額報酬金 - Gengaku Hōshūkin): If the lawyer successfully negotiates a reduction in the principal amount of the debt (after statutory interest recalculation), a percentage of the reduced amount (e.g., 10% of the reduction achieved) may be charged as an additional success fee.
    • Overpayment Recovery Success Fee (過払金報酬金 - Kabarai-kin Hōshūkin): If overpayments (kabarai-kin) are recovered from creditors, a percentage of the recovered amount is charged. The JFBA regulations, discussed later, set caps on these fees.
    • Actual Expenses (Jappi): These cover out-of-pocket costs such as postage, copying, transportation, and court filing fees if litigation becomes necessary for overpayment recovery.
  • Securing Fees in Negotiated Restructuring:
    Debtors undergoing negotiated restructuring are often making some payments to creditors. Upon engaging a lawyer, these payments to creditors are typically halted. The funds thus freed up can be allocated towards attorney fees.
    • Installment Payments: Retainer fees are commonly paid in installments. This might involve the debtor making fixed monthly payments to the lawyer.
    • Strategic Collection: Another method involves the lawyer negotiating a settlement with creditors where the first few months of what would have been debt repayments are instead directed to cover the lawyer's fees. This requires creditors' understanding and agreement, potentially including a concession from creditors not to charge default interest during this initial period.
    • Success Fee Collection: It's often practical to claim success fees on a per-creditor basis as each settlement is concluded, rather than waiting until all negotiations are complete. This can ease the financial burden on the client and improve the lawyer's fee recovery.

2. Personal Bankruptcy (自己破産 - Jiko Hasan)

Personal bankruptcy is a court-supervised procedure aimed at providing a "fresh start" for insolvent individuals.

  • Typical Fee Components:
    • Retainer Fee (Chakushukin): A fixed fee for handling the bankruptcy filing. Past Tokyo Bar Associations' guidelines suggested a range, for example, up to approximately ¥210,000 (plus consumption tax).
    • Success Fee (免責報酬金 - Menseki Hōshūkin): This fee is contingent upon the court granting a discharge of debts (menseki). It is often set at an amount similar to the retainer fee.
    • Actual Expenses (Jappi): Court filing fees, costs for official notices, postage, etc.
    • Court Deposits (予納金 - Yonōkin): In cases where a bankruptcy trustee (hasan kanzai'nin) is appointed (known as kanzai jiken - 管財事件), a separate deposit must be paid to the court to cover the trustee's remuneration and administrative expenses. In the Tokyo District Court, for example, the minimum deposit for a "small-scale trusteeship" (shōgaku kanzai) can be around ¥200,000. If no trustee is appointed (a "simultaneous abolition" or dōji haishi - 同時廃止 case), this specific court deposit for a trustee is not required.
  • Securing Fees in Personal Bankruptcy:
    Similar to negotiated restructuring, funds for attorney fees often come from the debtor halting payments to creditors.
    • Accumulating Retainer: If the debtor has some income, they may make installment payments to the lawyer to accumulate the retainer and court filing fees before the bankruptcy petition is filed.
    • Asset Liquidation (Pre-filing Considerations): In some instances, if the debtor has assets that are not substantial but could cover legal fees (and would otherwise be liquidated by a trustee anyway), strategies might be discussed, always within ethical and legal bounds. For example, the cash surrender value of a small life insurance policy might sometimes be used, though this requires careful handling to avoid issues of preferential treatment or fraudulent conveyance.
    • Challenges with Success Fees: Collecting success fees after a discharge is granted can be challenging, as the debtor is legally free from their past debts and may still have limited financial capacity. This is particularly true for clients with very low incomes or those receiving public assistance. Lawyers often rely on the client's goodwill or pre-agreed installment plans that extend post-discharge.

3. Individual Civil Rehabilitation (個人再生 - Kojin Saisei)

Individual civil rehabilitation allows debtors with regular income to significantly reduce their debts and repay the remainder over a set period (typically three years), often while retaining their home.

  • Typical Fee Components:
    • Retainer Fee (Chakushukin): A fixed fee for preparing and filing the rehabilitation petition and representing the debtor throughout the process. Past Tokyo Bar Associations' guidelines suggested a range, for example, up to approximately ¥300,000 (plus consumption tax).
    • Success Fee (認可報酬金 - Ninka Hōshūkin): Payable upon the court's approval (confirmation) of the rehabilitation plan. This might be similar to the retainer or, for less complex cases, a slightly lower amount (e.g., around ¥210,000 by past guidelines).
    • Actual Expenses (Jappi): Court filing fees, notice costs, etc.
    • Rehabilitation Trustee/Supervisor Fees (再生委員報酬 - Saisei I'in Hōshū): In some jurisdictions like the Tokyo District Court, a rehabilitation trustee/supervisor (saisei i'in) is appointed in all individual civil rehabilitation cases. A separate fee for this trustee must be paid, typically through installments to the court or the trustee. For example, the Tokyo District Court's fee for this was around ¥150,000.
  • Securing Fees in Individual Civil Rehabilitation:
    • Performance Test Payments: A key mechanism for securing both the rehabilitation trustee's fee and demonstrating the debtor's ability to make future plan payments is the "performance test" (履行可能性テスト - rikō kanōsei tesuto). After filing, the debtor is often required to make monthly payments equivalent to the proposed plan payment amount into an account managed by the rehabilitation trustee (or directly to the court) for a period, typically around six months.
    • Use of Accumulated Funds: At the conclusion of the rehabilitation proceedings (e.g., after plan confirmation), the funds accumulated during the performance test are used to pay the rehabilitation trustee's fee. Any remainder is typically refunded to the debtor.
    • Window for Attorney Fee Collection: The period from the filing of the petition until the actual commencement of payments under the approved rehabilitation plan (which can be 7-9 months or more) provides a window. During this time, the debtor is not making payments to their general unsecured creditors (though mortgage payments under a special clause may continue). This allows the debtor to allocate funds towards the lawyer's retainer and success fees, often in installments.
    • Higher Collection Rate: Since a stable income is a prerequisite for individual civil rehabilitation, lawyers generally experience a higher collection rate for their fees in these cases compared to, for instance, success fees in some personal bankruptcy cases.

For individuals with limited financial means, the Japan Legal Support Center, commonly known as Houterasu (法テラス), plays a vital role in ensuring access to legal services, including debt restructuring.

  • Legal Aid System (代理援助制度 - Dairi Enjo Seido): Houterasu provides a system where it can pay attorney fees and costs on behalf of eligible clients. The client then repays Houterasu in affordable monthly installments (often interest-free or at very low interest).
  • Eligibility: Eligibility for Houterasu's assistance is based on income and asset criteria. It is particularly relevant for debtors receiving public assistance or those with very low incomes.
  • Lawyer Registration: Lawyers must be registered (contracted) with Houterasu to provide services under this scheme.
  • Fee Levels: The fees paid by Houterasu to lawyers are generally lower than those typically charged in private practice or even those suggested by bar association guidelines (often estimated at around one-quarter to one-half of such guidelines). However, this system ensures that lawyers receive reliable payment for their services in cases where the client otherwise could not afford legal representation.
  • Importance: Houterasu is crucial for helping indigent debtors access justice and resolve their debt problems.

Key Regulations and Ethical Guidelines Concerning Fees

While fees were liberalized in 2004, the legal profession in Japan is not without oversight regarding fee practices, especially in consumer-related areas like debt restructuring.

  • JFBA Regulations for Negotiated Restructuring (「債務整理事件処理の規律を定める規程」):
    In response to concerns about potentially inappropriate fee charging and case handling by some practitioners, particularly in the context of overpayment recovery claims, the Japan Federation of Bar Associations (JFBA) established the "Regulations Governing the Handling of Debt Restructuring Cases" (effective from April 1, 2011, for newly engaged cases). These are not mere guidelines but binding rules for JFBA members.
    • Caps on Success Fees: These regulations set upper limits for certain types of success fees in individual (including small business owner) negotiated restructuring cases. For example:
      • Resolution Success Fee: Capped per creditor (e.g., generally ¥20,000 or less; up to ¥50,000 for commercial/industrial loans).
      • Reduction Success Fee: Capped at a percentage of the amount by which the debt was reduced (e.g., 10% or less).
      • Overpayment Recovery Success Fee: Capped at a percentage of the recovered amount (e.g., 20% or less if recovered without litigation, 25% or less if recovered through litigation).
    • These regulations were initially temporary and subject to review. However, they have remained a significant part of the regulatory framework governing debt restructuring fees.
  • Management of Client Funds (預り金 - Azukari-kin):
    Lawyers handling debt restructuring cases often receive and hold client funds, such as recovered overpayments, funds for distribution to creditors under a settlement, or refunds of court deposits.
    • Separate Client Accounts: The JFBA has established strict rules regarding the handling of client funds (e.g., "Regulations Concerning the Handling of Deposits, etc.," effective August 1, 2013), mandating the use of separate client trust accounts (azukari-kin kōza) to clearly distinguish client money from the lawyer's own firm funds. This is crucial to prevent commingling and ensure the safety of client assets.
    • This is particularly important when lawyers collect installment payments for their fees while also managing funds for eventual distribution to creditors. Clear accounting and separation are vital.

Conclusion: Balancing Access and Compensation

The structure of attorney fees in Japanese debt restructuring cases reflects an effort to balance the debtor's often precarious financial situation with the need for lawyers to be fairly compensated for their specialized services. Strategies like installment payments, leveraging the halt in creditor payments, and the availability of legal aid through Houterasu are all designed to make legal assistance accessible.

Simultaneously, guidelines from bar associations and binding regulations from the JFBA aim to ensure that fees remain reasonable and transparent, protecting clients from potential exploitation. For debtors, a clear understanding of the fee structure and how it will be managed is a critical part of the initial engagement with a lawyer, setting the foundation for a trustful and effective working relationship throughout the challenging process of resolving their financial difficulties.