Pointers regarding the New Law

[RickD]

Hi everyone,

I have been in the BK business for 15 years and work primarily in Chapter 13 with an attorney in Connecticut. I started a non profit credit counseling company in 2001. We have a pending application before the US Trustee for approval under the new law.

My take on this new law is that the trustees will be watching mainly the attorneys. The reason I say this is because under the new law there is "Attorney Liability". In other words, the law is putting the screws to the attorneys and as a result if they are not thorough and take short cuts they can be sanctioned for money damages. Attorneys will thus go way up on their fees. There will be more pro se debtors. Trustees and creditor's attorneys will be paying close attention to the BK attorneys rather than the pro se debtors. There will be many more prose debtors because they will not be able to pay the high BK attorney fees.

I take it most of you on this board are pro se debtors. You need not worry too much because a recent survey I read said that 80% of filers will be under the median income. Trustees will not be paying too much attention to these debtors and will most likely push most of them right along thru the system.

Here are some pointers,

1) take the means test early on so you know where you stand. Even if you are under the median you still have to fill out 3 pages of the B22a form.

2) get your pre BK credit counseling out of the way. Beware that some of these large outfits will try to put you thru one of their debt management plans. You will still have to pay your debts. You are not required to follow their advice. You are only required to get the counseling.

3) when filling out your forms please don't lie. Don't conceal assets or income, the US Trustees office has ramped up prosecutions of bankruptcy fraud. You can most likely get your discharge anyway.

4) if you are below the median income you might just sail thru the system.

5) don't forget to get your post BK financial education so you will receive a discharge.

6) if you own a home and are facing foreclosure I do not recommend going it alone under Chapter 13. If you blow it the first time they will not let you refile the case like the old law allowed. It is well worth hiring an attorney for Chapter 13.

Wishing you all the most luck.

Rick D

https://www.bcande.com

[StaciMM]

Regarding attorney liability-would this include situations where the attorney encouraged/allowed someone to file BK when their petition clearly indicates they won't receive discharge? (Such as when their income less expenses is several hundred dollars or more.) There seems to be alot of that happening, I imagine the attorneys that do it like collecting the up front ch 7 fee, then turn around and charge more for the ch 13.

[HHM]

Regarding attorney liability-would this include situations where the attorney encouraged/allowed someone to file BK when their petition clearly indicates they won't receive discharge? (Such as when their income less expenses is several hundred dollars or more.) There seems to be alot of that happening, I imagine the attorneys that do it like collecting the up front ch 7 fee, then turn around and charge more for the ch 13.

I think its an overstatement to say that happens "a lot". Under the current law, ultimately, its the debtor who decides which chapter to file, not the attorney.

However, right now, one of the biggest fears of attorneys is just what you described...if the attorney's sign off on a chapter 7 and it gets converted to a chatper 13, will the courts presume that the chapter 7 filing was fraudulent and therefore hold the attorney liable. The new code seems to indicate that they must hold attorney's liable. But it's an open question.

One thing to understand about the new code, it shifts the burden to the debtor in this way. Under the current (old) law, the burden was on the US trustee to show that a chatper 7 petition was fraudulent or improper, the new law pretty much assumes a chapter 7 petition is fraudulent unless the debtor proves otherwise (i.e. means test, etc).

As Rick has pointed out, most people who would have qualified for chapter 7 under the old law will still do so under the new law...however, there are so many more steps in the filing process, and more rules to comply with, that even though pro se debtors will still qualify, there is a lot more room for making mistakes, so you will see a lot of technical dismissals because the pro se debtor didn't know what they needed to do.

[RickD]

new law purposely places obstacles in the way

It will now be more difficult to dot all your i's and cross your t's because there is simply more to do under the new law. I am convinced that debtors and attorneys alike are potential targets. There is an open door for attorneys. In our litigous society one can almost make any case against an attorney and this is what they are most afraid of. The attorney I work with has not even addressed new issues yet. He still has not even gotten by the attorney liability part of the new law. Attorneys should be more worried than debtors. If pro se debtors are following all the basic rules, ie: not concealing assets or understating income then I think you will be just fine under the new law.

RD

[Pinktiger]

I predict that the new law will be found to be unconstitutional. It is not a good thing to place the burden of proof on the debtor that they are NOT committing fraud. The whole purpose of the law originally was to provide relief for debtors.
It also sounds like the new law has a chilling effect on attorneys, similar to the chilling effect new laws restricting abortion and a climate allowing harrassment of abortion clinics have had on that legal procedure -- or the chilling effect high insurance premiums have had on obstetricians (ironic, huh?).

This chilling effect will likely be the catalyst that brings the new law down.

[HHM]

True pinktiger, I think you might find some challenges to the new law on first amendment grounds in so far as it restricts attorney client communications. But who knows. In any event, it will be interstestin to see how it plays out.

[Minnymouth]

Many attorneys that represent people (under the old laws) are not very knowledge of the bankruptcy laws and codes.
Some are in it just to make a buck!!
Under the new laws if attorneys are held liable to the court for their errors they will take the time to be more knowledge about bankruptcy procedures.
People hire bankruptcy attorneys for their knowledge and expertise. I know I did!!!!
My attorney supposedly had 20 years experience, you SURE COULD HAVE FOOLED ME..... I found out I knew more about bankruptcy then he did.....but it was too late for me to change attorneys....
Had the new laws been in effect now - my attorney would have been a lot more careful in his actions in filing my Chapter 7 no-asset case.
Now I have to "pay the piper" to help get my Chapter 7 settled that has been going on for 15 months now.
Had my attorney been "as knowledgable as he should have been " and "responsible for his actions" more than likely I would not be in the postion I am now.
Yes I feel that attorneys should be held liable for their actions...... we hire them for their knowledge and expertise....

My experience,

Minny

[HHM]

True Minny, but that will also significantly increase the price to people who want to hire attorneys.

Actually, the new law is fairly mechanical, the software is already out there for doing the means test etc, so it really want be that much more complicated for attorneys in dealing with the "legal" requirements of bankruptcy. It will actually be easier to determine which chapter a person is to file under.

The liability for attorneys under the new law is not so much about their legal knowledge but for their knowledge of their clients situation. Take TDP's example from the other thread, he apparently had made significant payments to family members back in June or July...the Statement of Financial Affairs asks the debtor if he had made any payments to insiders in the last 12 months, lets assume TDP said no. If the attorney signs that petition, and the trustee finds out about it, the attorney is now liable for that answer on the petition. That is a very scary proposition for attorneys, and rightly so.

It still remains to be seen just how much an attorney has to investigate his client, but there will be a slew of bloody attorneys as that standard of investigation gets worked out.

[RickD]

Attorney Liability Clarification

Staci brought up a point earlier about the debtor having an action against his or her attorney. The new law allows the Trustee, US Trustee or a Creditor's attorney to bring such an action. If the debtor has a problem with his attorney then there is another remedy for this and that is their state's bar association grevience procedure.

BK Attorney's fear liability so much because, especially creditors attorneys, view these BK lawyers as having deep pockets and thus can afford a few monetary sanctions here and there.

RickD
learn more about the means test at

http://www.bcande.com/bankruptcy.html

learn more about the pre bankruptcy briefing at my home page

http://www.bcande.com

[Minnymouth]

HHM and RICK,
Yes I have to agree that it would be bad for a client to lie on a petition and then the lawyer pay the penalty for it......
Clients should also be held responsible for what they put into their petitions...... and penalized heavy if they lie or omit things from their petition.
A lawyer only knows what you tell him......
But I also feel that the lawyer has an obligation to his client to be knowledgable and use that knowledge to the best of his ability to defend his client.
Yes, I'm sure attorneys are worried about the outcome of it all. Rates will be high to file, and many attorneys will venture away from doing bankruptcies.
Our society is turning into a "dog eat dog" world....

My thoughts,

Minny

[RickD]

Hi Minny

Clients do lie and omit things and I think they will continue to do so. The BK lawyers already know this and will be much tougher on the clients. This is very unfortunate because the clients also have to pay a higher fee. I hate the fact the lawyers are seeming to care more about themselves than the client under the new law.

There has been a dramatic rise in BK fraud this year in Connecticut. I don't know about other states but here are some examples of how they can catch you.

1) filing false tax returns or omiting some income and a 1099 show up later all of a sudden.

2) inconsistencies between what you put on your schedules and what you tell the trustee at the 341.

3) having a multi family home and not declaring the rent.

4) if you own 2 properties and don't disclose one and then your tax collector files a proof of claim for the property you did not disclose.

5) telling the trustee you have rental income and then it does not appear on your tax return.

These are just a few examples. There are many more and under the new law Trustees will be on the lookout because lawyers get funny with something new and start enforcing all kinds of things they would have never enforced before.

So debtors who lie (if caught) will get their due also.

more later.......

Rick

[StaciMM]

A quick note about the BK attorney we consulted with before filing... When we scheduled our consultation, we were told to bring income tax copies, check stubs, etc. When we got there, we were asked to fill in the attorney's info sheet. He never looked at or asked for our income tax paperwork-took us at face value for what we listed. He did take our check stubs-I had made him copies-I'm not sure if he would have asked for them otherwise.

He didn't question us at all. Just looked at what we listed for income, looked at our list of creditors, the end-we were good canditates for ch. 7. He didn't want info on what led to this point.

In my opinion, it would not be unreasonable for a BK attorney to want to know a summary of events over the past 1-3 years of someone considering BK. Its not like anyone wakes up one morning and says "I think it would be fun to file BK". Something got them to that point, and it didn't happen overnight.

I've already commented about how BAD this guy was. (And that is why we didn't hire him and ultimately filed pro se.)

[RickD]

Staci,

You describe a typical 341 meeting under the old law (just get it through the system and be done with it), I am not at all surprised about what happened at your 341. It will be interesting to see how that same trustee operates under the new law. I plan to attend quite a few 341 meetings over the next couple of months. Since I already know the trustees in Connecticut I will have a bird's eye view of the "before and after". I am watching especially on if the deliberately pick on certain attorneys. I am watching if they will nit pick even the debtors close to the median.

My suggestion to you (if you have the time) would be to attend a couple of these meetings yourself as an observer. Reporting back to this message board could prove to be quite valuable info for new filers. You seem to be quite interested in BK and I encourage you to keep going. I don't know about your job situation but you would probably make an excellent paralegal for some struggling attorney in your area. It's not that hard to start this type of business. I did it back in 1989 and am still in the business. (PS: I never got rich from it)

Rick

[StaciMM]

Rick-that wasn't the 341. It was when we met with a BK lawyer!

Thanks for the vote of confidence, by the way. I enjoy learning about it, and I hope I can be of help to others. I'm curious about what is going to happen after 10-17 even though I really don't need to be. If I made $$ off of it-or even tried to-I'm afraid the red tape that would be involved would mean more hassle and less usefulness. As it is, I enjoy my day job (accounts payable) and I'm working on getting something set up to do some contract work with a former employer (quality control of sorts). I'll stick to doing what I can to learn, and using that to help others if possible!

[hhou812hh]

I think its an overstatement to say that happens "a lot". Under the current law, ultimately, its the debtor who decides which chapter to file, not the attorney.

However, right now, one of the biggest fears of attorneys is just what you described...if the attorney's sign off on a chapter 7 and it gets converted to a chatper 13, will the courts presume that the chapter 7 filing was fraudulent and therefore hold the attorney liable. The new code seems to indicate that they must hold attorney's liable. But it's an open question.

One thing to understand about the new code, it shifts the burden to the debtor in this way. Under the current (old) law, the burden was on the US trustee to show that a chatper 7 petition was fraudulent or improper, the new law pretty much assumes a chapter 7 petition is fraudulent unless the debtor proves otherwise (i.e. means test, etc).

As Rick has pointed out, most people who would have qualified for chapter 7 under the old law will still do so under the new law...however, there are so many more steps in the filing process, and more rules to comply with, that even though pro se debtors will still qualify, there is a lot more room for making mistakes, so you will see a lot of technical dismissals because the pro se debtor didn't know what they needed to do.

"Presumtion of abuse" would probably be more of what you mean HHM then "fraudulent". Filing a ch7 under any law isn't really fraudulent unless the debtor breaks the rules.