Cautionary Tale re Bankruptcy, Attorneys and Notice

bankruptcy noticeHow often has your bankruptcy client presented you with a copy of a complaint or an abstract of judgment for inclusion in their list of creditors?

On the face of the pleading, you have the name and mailing address of the creditor’s lawyer.

But is that good enough for a bankruptcy discharge?

A recent case from the 9th Circuit has caused me to reconsider.

Notice to former lawyer inadequate

The debtor lost an arbitration that alleged securities fraud.  When it came to filing Chapter 7 three years later, he listed the address of the creditor’s attorney in his schedules, rather than the name of the creditor, Fiero.

Here’s where it gets tricky:  the lawyer still represented Fiero, in other matters, but not the one leading to the arbitration award.

The lawyer represented other creditors listed in the debtor’s case, and even brought a non dischargeability action against the debtor for the other creditor.

Despite having actual knowledge of the bankruptcy case, the lawyer didn’t relay information about the filing to Fiero.

Held:  the lawyer who represented Fiero in the arbitration was no longer Fiero’s agent, for the purposes of receiving notice of the bankruptcy.  Perle v. Fiero

In the absence of effective notice of the bankruptcy, a non dischargeability action filed four years later was timely.  And later, successful under §523(a)(6).

Notice, notice, who gets the notice

The obvious answer is that notice of a bankruptcy filing should go to the creditor itself.

That’s simple and perhaps not very useful to a bankruptcy practitioner.

Think about the car accident where your client might never have had the mailing address of the other party.

When there’s a question about whether the claim falls into one of the “bad behavior” exceptions to the discharge, you have choices.  Or rather, parallel lines of attack.

First, you and/or your client need to make serious efforts to find a good address.  Consider noticing every “Victor Victim” in the county, or listed in the motor vehicle records.  When the court pays for sending out the notice, there should be no reluctance to over notice.

Second, your client needs to be apprised of the risk that notice only to litigation counsel may not be adequate.

My representation agreement expressly discusses the issue of notice:  we agree to assist in finding good addresses, but where we try to fill in sketchy information from the client, the client assumes the consequences of bad notice.

Thankfully, the provision has never been tested, but it should serve to alert the client that the matter of a good address is a big deal.

Then again:  if you are a state court litigator, consider when your representation ends?

Do you remain counsel of record after entry of a judgment?  Doubtless, state law differs.  Figure it out so you don’t find yourself on the reverse side of the Perle decision:  agent for a client with whom you have no current contact.

Image courtesy of Nemo and Pixabay.

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  • That’s a really good practice tip and something you might not be aware of until it happens to you