I didn’t and I’m sorry.  The client was full of guilt about the financial situation and kept insisting at our first meeting that “no one should be hurt but him” as a result of the financial predicament leading to bankruptcy.  That situation included back taxes on a joint return.

Now the non filing wife is spitting mad because she thinks that she was “promised” that the bankruptcy case would have “absolutely no impact” on her.  And she’s concocted some reason that she thinks has/will/might adversely affect her.  The client of  course claims it (whatever it is) is all my fault.

Somehow the wife has lost track of the fact that the family owes a fistful of money, including at least two years of back taxes.  But, in her mind, none of the perceived trouble is the result of the debts, but is traceable to the bankruptcy.

Maybe I should have seen the client’s initial desire to take all the responsibility for the situation on himself as not guilt, but fear of the irrational spouse.

It’s hard to figure out how to manage the situation when I believe much of the wife’s fears are irrational and unfounded.  Some of the consequences here may be unavoidable.  But it’s uncomfortable being caught between the two spouses.

Add “reasonable expectations of the non filing spouse” to your checklist of essential client characteristics.

As I worked on developing the course, I found myself seeing new aspects of the schedules, figuring out where “the law” on any subject was found, and asking myself “what is it that I know about this issue that you don’t find in books?”  There’s a reason that California offers triple continuing education credit to presenters:  it’s an education to be an educator.

I  also know from working with a couple of rookie bankruptcy lawyers that I mentor face to face that, a year into meeting regularly and having me mark up their draft petitions, they still don’t always get the petition right, much less get client issues that I can elicit in conversation included in the schedules.

The practice of bankruptcy law looks deceptively simple:  there are official forms, sometimes official instructions, and there are software programs where you just fill in the data fields.  Piece of cake, some think.

I think not.  Extracting information from clients is like peeling onions, layer by layer.  Recognizing that information for what it is and how it fits into the schedules, and seeing the Chapter 5 implications, is part of the basic bankruptcy lawyer  tool kit.  You have to keep adding to the tool kit and maintaining the tools you have.

Perhaps the most important tool is humility about what one knows about the field.  The surface of the water looks smooth, sometimes, but the depth of the pool is surprising.

Welcome to consumer bankruptcy.

Image courtesy, I think, of Jenny at http://www.piqs.de/fotos/1443.html

• Tax liens create  a secured claim in favor of the taxing authority.  That claim incurs interest at the statutory rate.
• Exemptions, bankruptcy or state, are not effective against tax liens, which are statutory liens.
• Tax liens survive a Chapter 7 discharge on the assets the debtor held at filling.
• If the tax which the lien supports is discharged, the lien does not attach to post petition acquisitions.
• If the value of the collateral is less than the tax owed, the balance of the tax debt can be either priority or unsecured, depending on the facts.
• Liens are satisfied from assets in the order they are perfected; there may be a lien that is not an allowed secured claim because the value in the debtor’s assets is already committed to a senior lien.

This is obviously just a summary of  the subject.   Develop a facility with tax issues, however, and you will stand out among bankruptcy practitioners.  If this area intrigues you, Morgan King’s Discharging Taxes in Bankruptcy is essential.

More on taxes

The 3 year Rule

The Calendar Tax Trap

Taxes and the Means Test

The National Association of Consumer Bankruptcy Attorneys is the only professional group dedicated to the issues in the lives of bankruptcy debtors.  It began, with  Norma Hammes and Ike Shulman  from San Jose,  as a lobbying voice for the consumer’s interests when there were few other groups advocating on Capital Hill.

It has grown to almost 5000 members and provides, in my view, the most focused and effective education for those practicing in this field.  The annual meeting will be 2 1/2 days of intense learning, bonding, and sharing among the best consumer lawyers anywhere.

So if I haven’t said it, and you haven’t done it, join NACBA today.  Get on the list serve, get free FastCase,  get your firm listed on the attorney finder, and seek out the state chair for your state for local opportunities.

Come to San Francisco (you can skip the flowers in your hair, as far as I am concerned).  Find me at the convention and introduce yourself.  I’ll be speaking on Saturday on Vesting and Conversion.  Let me know what you’d like me to address here.  It’s questions and feedback from new lawyers that keep this effort pointed in the right direction.

The stories of bad advice and dishonest behavior that accompanied that announcement were extreme, to be sure.  But the view that attorneys representing consumer debtors have greater exposure for shortcomings in the schedules under BAPCPA is not so extreme.

Bankruptcy attorneys can get into trouble two different ways:  one is indifference to accuracy. The more complicated your client’s economic life, the longer it takes to put together complete and consistent schedules. Taking time with the filing eats into slim profits.  But fail to cross check the end product against the debtor’s input and against your notes and you risk avoidable error.

The second path to trouble is turning a blind eye to the debtor’s intentional omission of pertinent facts.   The story my source recounted was a lawyer who told the client that it was the trustee’s job to find the assets, rather than the debtor’s duty to disclose them.

Remember the sergeant’s daily admonition in Hill Street Blues?  ” Hey, let’s be careful out there.”

Primarily means over half in dollar amount.

The code defines consumer debts in §101(8) as debt incurred for a personal, family or household purpose.

You may be surprised by the kinds of debt that are not consumer debt:

• Taxes
• Business debts
• Tort claims
• Professional school loans

The last two are supported only by a few cases, but the thread of the decisions on the subject make the debtor’s election to incur the debt a deciding factor.  One doesn’t “elect”  to be subject to taxes, the courts reason, so they aren’t consumer debts. Likewise, auto accident liability.

Professional school loans perhaps come closer to being business debts rather than personal debts.  The law isn’t clear, in my view.

Mortgage debt incurred to acquire a house is personal, but a refinancing to fund a business is probably business debt.  Debt incurred to buy rental property is incurred with a profit motive, one of the courts’ favorite measures of whether a debt is or is not a consumer debt.

Then there is the business credit card.  If actually used for business, it is not a consumer debt.

So, before you chug through the means test, make sure it applies to this client.

More on bankruptcy’s  means test

Things to look at before you push the button to file:

1. Have you listed anticipated changes in income and expenses on Schedule I and J?
2. Does the number of dependents on Schedule I match the number in the household on B-22?
3. In Chapter 7, does Schedule J make provision for paying priority claims that will survive bankruptcy?
4. Does SOFA account for foreclosures, lawsuits, levies and other losses of property pre petition?
5. Do projected budgets deal with divorce, separation or relocation?

For many things in the schedules, there is not one single way to express the facts.  Focus on getting the important information or the relevant changes on paper in a way that lets the trustee know what the story is.  Add a note or attach a schedule to tell the pertinent parts of the client’s story.