What Price Silence?

reading book-flickr Dustin GaffkeRead any good orders lately?

I read a not-so-good order yesterday.

It  affirmed sanctions against debtor’s counsel for advising the client to remain silent in the face of a Chapter 13 confirmation order to disclose.

That sent me off to read through the standard order confirming plan in the Northern District.

I was not keen to see my name in the advance sheets in that context.

I needed to know exactly what our order provided.

MaGee

The distressing case from the 9th Circuit BAP involved a post confirmation automobile accident.  The order confirming the plan provided that the debtor “shall inform the Trustee of any changes in circumstances or receipt of additional income. . . .”

The bankruptcy court found that counsel had advised that the accident claim wasn’t income and the Chapter 13 trustee was unlikely to discover the right to recovery.

Ouch.

The trustee did discover the claim when the carrier’s counsel called the trustee about who should get the settlement check.

Between that call and the BAP decision on sanctions, there ensued a hearing on the allocation of the settlement between the trustee and the estate;  the revocation of the debtor’s discharge; and a  two day hearing on the court’s OSC concerning counsel’s behavior.

Even if all of those decisions had run in the debtor’s favor, the case sucked up a huge amount of time.

The take-away

The most egregious part of this story is counsel’s indifference to the provisions of the order confirming the plan about future disclosure.

There is lots of foment in the cases right now about what is property of the estate post confirmation and just what difference new assets or a change of circumstances  means to the plan.

In my view, the law is unsettled.

But it’s hard to have any sympathy for an attorney who, in the face of an order requiring disclosure, counsels silence.

Word for word

My review of our local order confirmed what I thought I knew:  there is no mandate in our order dealing with reporting of changes of circumstances.

But it is never time misspent to check those things you think you “know” and to read, word for word, the forms, the guidelines, and the rules.

Image courtesy of Flickr and Dustin Gaffke 

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  • J. kaufman

    This post brings up many good points. The first is that all chapter 13 bankruptcy attorneys should be very familiar with their districts standard model plan and the modifications in the confirmation order.

    I practice in Idaho. We recently changes our plan in the last year. The Chapter 13 Trustee attempted to include in the standard model plan language that mandates the debtor apprise the trustee of an increase of income greater than 10% or whether they marry or otherwise receive income (lottery, SSDI lump sums, bonuses, etc.). However, the judges in our district shot that down and 86’d that proposal from the standard model plan. Still, though, our trustee includes that language in all confirmed plans (In Idaho, we don’t have a “standard order,” to my knowledge). I don’t prefer the language, but typically my clients are opting to settle an issue the trustee otherwise has with their case, so taking on that duty is a cost of the settlement in my book. But when I’ve had clients with squeaky clean chapter 13’s I’ve advised against signing a confirmation order with that language.

    Whether the PI claim in that case was property of the estate, to me is an issue that is not settled in the 9th Cir. I’ve seen case law from the 9th Cir. BAP that held that all pre-petition AND post-petition property is not property of the estate once a plan has been confirmed (unless the plan provides otherwise; see 1327(b).). California Franchise Tax Board v. Jones, 420 B.R. 506 (9th Cir. BAP 2009). That case was appealed to the 9th Cir., which did not go so far as the BAP to take the “estate termination” approach that the BAP took, because to resolve the case’s issue the 9th Cir., did not need to go so far as the BAP did; in doing so it stated, “Resolution of this case does not require us to adopt one of the other specific approaches. Regardless of whether and to what extent the estate continues as a legal entity post-confirmation, we hold that, at the very least, some estate property revests in the debtor at confirmation.” California Franchise Tax Board v. Jones, 657 F.3d 921, 928 (9th Cir. 2012). The 9th Cir. otherwise affirmed the BAP’s decision. So you could argue the BAP’s decision included a bunch of non-binding dicta.

    But I digress, the issue in MaGee wasn’t whether the PI claims WAS property of the estate, but whether the Debtor had a duty to disclose it. “The bankruptcy court held that MaGee’s response to Ms. Carlson’s inquiry regarding the claims amounted to bad faith and was an intentional or reckless misstatement regarding the disclosure requirement under the plan confirmation order.” In fact only $850 of the $50,000 PI award was attributable to lost wages and only that small 1.7% of the award was property of the estate.

    The Magee decision, frankly, reminds me that attorneys are first officers of the court, then advocates for their clients. If it is clear that if a court order imposes a debtor to disclose the acquisition of an asset, regardless of whether that asset is property of the estate, then by golly, the attorney needs to advise the client to follow the court’s order. So check those confirmation orders.