To review:  a judgment lien perfected within 90 days of filing may be avoided, and rendered unsecured, if the requirements of § 547 are met.  Where I practice, judgment liens are perfected in real property by recording an abstract where the real estate is located, and in personal property, by filing a notice of judgment with the Secretary of State.

So, your intake procedure has to search out these transfers at the beginning, and if there’s a transfer within the period that you want to avoid,  you must calendar the last day to file the case and preserve the right to avoid.  Judgment liens are discoverable on the public record, and there’s little defense to not looking for them if the client has assets that may be diminished by the perfection of such a lien.

Given the distractible nature of our clients, it may be difficult to keep the client focused and on track to get you want you need to file timely.  I suggest that if you aren’t getting full cooperation, you paper your file with a warning letter to the client about the costs of delay.

Many clients are petrified of the filing of a suit, but others are indifferent as to what happens next.   They may have chosen to ignore suit, and sometimes even fail to tell you about it or supply the pleadings.

Like most things in this practice, the amount of energy and expense you devote to independent investigation of situation is guided by the situation of the client.

But having identified a meaningful preference, start the countdown to 90.

We’ll talk another day about preferential transfers the debtor might not want to avoid.  But counting is required there too.

Image courtesy of Tifotter

I’ve taken my swipes at my clients’ previous lawyer in a prior post for either missing or ignoring issues that needed to be picked up and addressed in the schedules and the Chapter 13 plan.  Some of the discussion with readers suggested I was being harsh about inexperience or that the lawyer was unethical rather than simply untrained.

So, let’s assume that my predecessor suffered from a lack of bankruptcy skills, and go through the facts that he did put in the bankruptcy schedules, and find what I see as clues to further issues which didn’t find their way into the schedules.

• Clients operated a liquor store & deli. They don’t own the building, so most likely there’s a lease.  A lease is an executory contract and is deemed rejected if not expressly assumed in the bankruptcy case.
• Clients are delinquent on a wide array of bills. I’d ask if they were current with the landlord. In my case they weren’t but the arrears aren’t scheduled.
• Clients owe income taxes for the prior year. Since 2009 return was unfiled at the time, I’d ask if they expected to owe taxes for that year.
• Clients gave the business a value in excess of the value of its inventory. If a business has value over and above the value of its assets, that value represents the ability to make a profit.  Was this business profitable?  Could it be sold for more than the value of the assets?  Attorney accepted client’s value of $70,000.  I doubt it.
• Clients own a home. I’d ask if the property taxes are current.  They weren’t.
• Residence is underwater. If there is no equity, there is no need to use an exemption to protect the asset from unsecured creditors.
• Retirement plans are from governmental employers. Such plans generally have anti alienation provisions that take them out of the bankruptcy estate.  No exemption is necessary.
• Non exempt assets valued at $100,000. Best interests of creditors test requires that creditors receive what they would if those assets were sold in a Chapter 7, yet the plan provides for $7000  in total payments.

Interviewing a client for a bankruptcy filing is different than cross examination at trial.   In a courtroom, the rule is “Don’t ask a question to which you don’t know the answer.”   In your office, the rule is just the reverse:   keep asking questions.  Then ask some more.

Think about the big picture:

• Is it complete?
• Is it credible?
• What are the expenses and obligations typical for your client’s situation?
• What kinds of debts or kinds of assets would you expect?
• Does the client understand the level of disclosure required?

If not, keep asking.  Because the initial interview is the well-trained bankruptcy lawyer’s ticket to the entire case.

Many new bankruptcy lawyers treat the consultation as a snorkeling excursion, whereas I look at it as deep-sea diving.  It’s a challenge, and requires both time and significant energy.  Preparation in the form of extensive training is a given; after all, would you try to go 200 feet below the surface without learning a thing or two beforehand?

One of the things that makes it complex is trying to establish rapport, record what you’re learning from the client, think about what the answers suggest in further inquiry, all at once.

So significant is the initial consultation that I taught a two-hour class on the subject last year.  Two full hours on a matter that most lawyers try to keep to the smallest amount of time possible.  120 minutes spent to deconstruct an aspect of the practice of consumer bankruptcy law often relegated to a non-attorney.  And in hindsight, I barely scratched the surface.

I suggest you develop a checklist to help you touch all the bases.  It can be a work in progress that you expand with each experience.  (Someone said that each clause in a standard contract represented a scar from a previous deal.)

The mic is yours – what do you think about this?

As I looked over the petition, things got worse.  The schedules omitted the $5000 of 2009 taxes;  the attorney took 100% of his fee up front, and filed a plan that ignores the “best interests of creditors” test.  The I and J budget are inconsistent with the prior year income from the debtor’s business and raise questions of plan feasibility.

Then I got to Schedule C:  the attorney squandered a $26K exemption on a house that had no equity and left unprotected some $100K in business assets.  Yet, I find that the input for Schedule B was input on line by the debtors, and never, I bet, read, much less analyzed, by the attorney who got 100% of his fees up front.

And then I discovered that the business premises lease had not been assumed and the debtors were at risk of losing the site for their store.

I looked up the attorney’s web site.  He offered probate, criminal, personal injury, malpractice, and divorce, and, oh by the way, bankruptcy.

He clearly knew nothing about a Chapter 13 case.  At best,  I can hope he expected to learn some bankruptcy law in this case on the fly.   But it seems he will only learn something at this client’s expense.  Where this family will be if it loses the store that helps support the family, I don’t know.  If I take on the client, he may learn nothing.

Do it yourself bankruptcy education is expensive to the client.

Scream or die notice is grounded in that phrase in the code “notice and opportunity for hearing’ .  The court is relieved of the need to hold a hearing where there is no dispute; the opportunity for a hearing, whether or not the opportunity is exercised, is sufficient for due process purposes.

Another phrase for the same approach to notice is “negative notice“.

Why is this important for bankruptcy lawyers?  The tax debt, even if payment isn’t yet due, is a debt for purposes of the means test priority debt line after Dec. 31.  For the over median income filer, it is one more allowable deduction from income.

If the return hasn’t yet been filed, you can either prompt the client to get it done ASAP, or estimate the unpaid portion of the last year’s tax.

Consider as well if last year’s withholding was less than the actual debt, is the current withholding sufficient to equal the tax burden of the current tax year?

More on taxes and when they are dischargeable.

Why do I care what the exemptions are in any state but California?  The Bankruptcy Code! ( what other answer did you expect from me? )   BAPCPA tried to eliminate any advantage a debtor might reap by moving to a state with more generous bankruptcy exemptions than their current state. Bankruptcy Code 522(b)(3)(A) sets out the formula to determine which state’s laws are available to the debtor who has not lived in the state where the bankruptcy case is filed for two years.

But it gets more complicated. The exemption laws of  some states don’t apply beyond their borders.  But which ones are those, and how do I find out, you ask.  Go to exemptionexpress. The stated purpose of the site is to help bankruptcy lawyers

1.  To determine what exemptions (federal, state, or both) are available to that debtor;

2.  To determine what, if any, territorial limitations there may be on use of those exemptions; and

3.  To provide statutory and case law in support of those determinations.

Talk about a public service.  Thanks, John.

What to do when there’s more cash than exemption.

Image courtesy of Marxchivist

While the article is dated, the theme of the 2002 ABA article on bankruptcy as a hot area of practice remains true:  bankruptcy is delicious in terms of its complexity and a quick route into the courtroom.  And that was before BAPCPA.

Bankruptcy Jude Manuel Barbosa is quoted for the proposition that there is a real need for quality lawyers to represent consumers. With the Great Recession, the need is even greater.

Experienced business and bankruptcy lawyers echo each other in highlighting the breadth of the practice.  The more you understand business, real estate or family law, the more you bring to a bankruptcy practice.  I would add that the more you focus on getting a practical and economic outcome for your client, the better the service you render.

“You can’t learn bankruptcy law solely from the books”, said bankruptcy lawyer Mike Sigal.

So hang out here a bit, and we’ll continue to share those things about bankruptcy practice that you can’t find in books.

More on courtroom experiences in bankruptcy

image courtesy maveric2003