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Thursday, June 15, 2017

How to Avoid Unwanted Surprises at Chapter 7 Bankruptcy Creditor Meetings?

            It continues to surprise and dismay me what I observe at creditors meetings in Connecticut while I wait for my clients' cases to be called. This is not meant to be an attack on my fellow consumer bankruptcy attorneys in this state most of which are diligent and thorough in the protection of their clients' interests. However, there is a minority which I have noted over the years are less thorough to the detriment of their clients. Case in point recently I was at a creditors meeting where an elderly woman debtor was being questioned by the Chapter 7 trustee. It was clear the debtor’s attorney was meeting the debtor for the first time at this meeting and based on the interchange between the debtor, trustee and this attorney she had little to no prior knowledge what was listed on the debtor's petition and schedules. As has been described before in this blog there are limited bankruptcy exemptions available for a debtor's property which controls what they can keep and what the trustee may take to sell for the benefit of creditors. At this creditors meeting it became clear the debtor's personal property schedules did not match some financial documents she provided to the trustee prior to the meeting. In fact, the debtor at the time of her filing had twice the amount listed in both her bank account and brokerage account more than her wild card exemption. In my view, this error is inexcusable and avoidable. Also, when questioned about other items of value she disclosed she had an indeterminate number of gold coins not listed on her schedules, but could not provide any real details to the trustee requiring further investigation. These errors and omissions makes me question how thorough an investigation was done by the debtor’s law firm prior to filing. Did they just have her complete a bankruptcy questionnaire with no follow-up or questioning by an attorney? Does the debtor’s law firm routinely let their staff meet with clients for the execution of their bankruptcy petition and schedules? Some debtors are more sophisticated than others and this elderly woman clearly needed some extra guidance to help her. I felt particularly bad for her since she indicated to the trustee she had been withdrawing funds monthly from her brokerage account to live off of and now she will have to turn over a good portion of these funds to the trustee. This all could have been avoided with a thorough and diligent pre-filing review of her assets by her lawyer.
        Does this failure rise to the level of malpractice or an ethical violation? Both may be true, but that is not the point of this post. My concern is the proper handling by bankruptcy lawyers of client intakes and filings to avoid these types of surprises. The unfortunate consequences described in my example could have been avoided first by a careful examination of the financial documents provided by the debtor and not filing without verification of all asset values at time of filing. This is a basic and extremely important duty of any bankruptcy attorney. Also, I personally never rely on a client's self-completed worksheet no matter how financially sophisticated they may be. I personally go over and have the clients answer every question with me pre-filing with follow up documentation provided as needed. Based on my experience I know what a trustee will focus at a creditors meeting and ask the same questions. It is during these client conferences that the debtor will disclose a collectible like the above debtor's gold coins, a payment to an insider creditor within the past year, the fact they received an interest in their parent's home for estate planning purposes etc. All problematic issues which could affect their ability to file or in many cases the timing of their filing which likely was the case in my example above. If her attorney had done his job she could have used her liquid funds to live off of till her assets reached a level where she could exempt what she had. Instead her bankruptcy was filed prematurely to her detriment. I advocate a hands-on approach as a bankruptcy attorney and counsel against delegating too much responsibility to staff or the client/debtor to avoid surprises at creditors meetings.

Tuesday, May 16, 2017

New Bill to Allow Bankruptcy Discharge of Student Loans Submitted to Congress

     H.R. 2366, the  Discharge Student loans in Bankruptcy Act was submitted by lead Congressman John Delaney (D-MD) this month. It is heralded as a bi-partisan effort, but only one republican John Katko(R-NY) has signed on so far as a co-sponsor. It is also an ambitious proposed amendment since it completely eliminates the subsection in 11 USC 523 referencing student loans as an exception to discharge. Therefore, no more need for proof of undue hardship or time limitations applied to discharge of student loans which will be treated like any other dischargeable debt. The ability to discharge student loans will be based on the existing limitation to qualify for discharge in Bankruptcy including the Chapter 7 means test for example. Also no distinction between federally insured  and private student loans which I anticipate will incur some blowback and possible changes if this amendment  even makes it way through Congress. The need for this amendment has been well documented in the press with the student loan crisis reaching epic proportions. The question is whether a Republican controlled Congress very much beholden to a strong bank lobby will approve it. This is especially true with regard to private student loans the biggest problem for debtors since unlike federal student loans there are no payment programs in place to provide any relief to debtors.
     It may take until 2018 with the possible control of the House and/or Senate being transferred to the Democrats. Also the undpredictability of the current occupant of the White House and how long he may stay there also will come into play. The need for reform is clearly there. Will this current government take the necessary action to address it is unclear at best. I encourage anyone concerned with this issue to reach out to their Congressperson to advocate for the passage of this amendment to bring the relief needed to those debtors suffering from the burden of excessive student loan debt. This crisis affects all of us not just these debtors since it a major drag on our economy and once these debtors especially young struggling adults are freed from this debt they will be able to start families, buy homes and related items to help grow our economy for the benefit of all.