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.