One trait makes a bankruptcy lawyer stand out.
Bankruptcy forms promote the view that filing a case is just recording what the debtor owns and owes today. If all you focus on is the here and now, you can assemble a bankruptcy petition.
But if there is one, uniform failing in average bankruptcy lawyers, it’s that they confine their attention to the here and now-what does the client have, owe, and earn.
Great bankruptcy lawyers take the broad view. They look backwards and forwards from the filing date before uploading the petition. Because bankruptcy rights and consequences flow from both the past and the future.
Let me count the ways this works.
Past events impact today’s petition
Our client’s present circumstances didn’t just pop up, overnight, like a mushroom. They are the product of years of interlayered events. The better we understand those events, the better we can advise the debtor.
- Means test income and Lanning : does the 6 month look back income include a unique event, like a bonus, that won’t occur again?
- Preferences: in the last 90 days, did they settle a suit, pay their student loans, make any transfer they don’t want undone?
- Transfers to insiders: in the last year- if client has been repaying family loans, you don’t want them surprised when trustee sues their parents
- Conveyances to “protect” assets: move title from debtor to buddy, and debtor may have set buddy up for suit and imperiled their discharge
- Contributions to 529 accounts: money contributed to government sanctioned college savings accounts within two years may be recoverable by trustee
- Interstate moves: a move between states within two years of filing may drive exemption options
- Fraudulent transfers under state law: the statute of limitations on fraudulent transfers where I practice is four years, and the trustee assumes the creditor’s rights to recover the transfer
- Tax filings: if there’s tax debt, it matters whether client got an extension of time to file return and whether tax day fell on the 15th, 16th, or 17th three years ago
- Transfers with intent to hinder, delay or defraud within 10 years: § 522(0) provides for reduction of homestead exemption for bad acts within a decade
So, you may have to get the client’s life story to see all the issues in their bankruptcy filing.
Events after filing matter, too
We’d like to think that things are locked down, right and tight, when the case is filed. But some post petition events will augment the property of the estate in ways that don’t benefit the client.
- Inheritances– 541 expands the scope of property of the estate to assets acquired by testate or intestate succession. Did you inquire about the health of client’s relatives and their succession instrument of choice?
- Additional debts if it’s likely that the debtor will accrue more debts, perhaps from ongoing illness, those debts won’t be dischargeable for years if you file a Chapter 7 prematurely
- Mortgage payment adjustments coming a mortgage payment reset may affect the means test and the money available to fund a Chapter 13.
- Real estate appreciation post petition appreciation belongs to the estate. In a rising real estate market, you may need to compel abandonment of property before it becomes attractive to the trustee
- Tax refunds – a fraction of any tax refund for the year of filing may belong to the estate. If the client is overwithheld, did you advise reducing withholding to eliminate refund come April?
- Expiration of limitations on sale when prepetition options vest, or restrictions on sale of stock expire, the trustee may be able to sell something previously worthless.
The bigger picture yet
Going through bankruptcy can be a teachable moment: if the client considers how he got here, a great bankruptcy lawyer may have thoughts for a sounder financial future.
The lawyer may ask:
- Can you afford this house or this car in the long run?
- Can you avoid taking on student loans that will cloud your future?
- Can you utilize the financial discipline you used to survive this long to prepare for old age?
It’s not just filling out forms
The attorneys who see bankruptcy as “just filling out forms” set their clients up for unpleasant surprises. It’s not easy or quick to extract all this information from a client who is stressed and self condemning.
Not easy, but the difference between adequate and great.
If you’re reading here, I’d like to think you’re a member of the Lake Wobegon Bar Association, where all the lawyers are above average. Cheers.
Image courtesy of Flickr and Kim Seng