Warning Signs Of A Complex Bankruptcy Case Exposed In The Consultation

Is an initial consultation an opportunity to prevent problems later on in the case? Should you be doing more?

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?


  1. ” … Such plans generally have anti alienation provisions that take them out of the bankruptcy estate …”

    I understand what you’re saying, but since d(12) is unlimited I don’t see how the attorney has created a problem for the client by using an exemption.

    • Cathy Moran, Esq. says

      This is a case where that mistake doesn’t have an adverse consequence, other than the probable need to amend to get it right. The plans aren’t property of the estate, so I expect to fix it with the amendments.

  2. Cathy-
    I just spent 1.5 hours meeting with a client today, and decided that I don’t want to represent that client. It was the best 1.5 hours that I spent all day, even though I did not get paid for it. The feedback from the client enabled me to understand that I would not be able to get cooperation from these clients in a very complicated case, which involved previous ownership of a business. It took over an hour for me to get to that point with them, but it sure will save me much headache down the road. I think the ability to recognize such problem clients just comes with experience and after having been “bitten on the butt”, so to speak, many times ! Trial and error is the best teacher, I am afraid !

    • John, how do you phrase your decision not to take the case to the would-be client? Having spent an hour trying to build rapport, I find expressing a decision not to take a case difficult.

      • Bill Ketchum says

        If you really don’t want the case, say, “I have determined that I will not have the time to handle your case,” and prepare the non-engagement letter. I once simply quoted an artificially high fee for a case I didn’t want. Unfortunately, the client happily paid it!

      • I agree with Bill, Cathy….. that is why I always preface every conversation with clients now with the note that I may or may not be able to represent them or assist them. It depends on our conversation and if I feel, after meeting with you, that I will be able to assist you, then we can discuss the costs and how to go about that. If I feel that we will not be able to assist you, then I will tell you that.

  3. Paul Murphy says

    Initial appointments are indeed extremely valuable. You can do them fast, or you can do them right. Prod and probe!

    We use a check list through TimeMatters covering a range of items, to name a few:

    Employment, income
    homes (equity, arrears, details)
    vehicles (equity, details)
    toys (boats, trailers, etc)
    taxes (refunds, years filed or not, etc)
    student loans
    child support
    criminal fines/restitution
    prior filings
    how they found us

    If I’m missing anything major let me know i would love to add to the checklist.

    • Paul Murphy says

      left off a few more

      recent payments to creditors
      recent payments to insiders
      property transfers
      debt incurred in last 90 days

    • It’s those transfers that are the game changers. Most people have no trouble telling me what they agree they now own. It’s the stuff they transferred, or hold title to but really don’t “own”, or went off title to facilitate refinancing that I need to find, up front.

  4. LegalSecy says

    If you have support staff…

    … particularly if you have one or more Legal Assistants or Paralegals whose job it is to collect detailed questionnaires and documents from clients (usually after the client has met with the attorney for the initial interview)… please do two things:

    1) In your attorney’s case notes, LEAVE NOTES about any Red Flags you have noticed in your meetings with the client. I don’t have the same legal training that you do, and the Red Flags you noticed may not hit my Red Flag Radar if you don’t leave me some Bread Crumbs telling me what to look for.

    2) TEACH your support staff what to look for – just as Cathy is doing here for new attorneys. Your support staff want to support you well – and in law firms that depend on advanced support staff, often the support staff will have as much or more actual pre-filing face contact with the client as the Attorney does. Support staff can be critical to getting the right documents lined up and the right debts and assets on the client’s schedules in the right places. Advanced support staff also often are able to identify and “Flag” important issues that the client may have neglected to disclose to the attorney.

    Never Forget to keep updating your support staff’s education & training, so they can be as useful as possible to you in supporting your practice!

    • Legal Secretary is right, as usual. In addition to the notes I take during the initial meeting, I try to a post consult memo for the staff that addresses what we know about the client, what we need yet to pin down, what the client was tasked to do following our meeting, and my impression of the dynamics of the couple, if it’s married folk. Cases where I don’t do that are clearly harder for the staff.

      • Al Hartwell says

        At the conclusion of my initial interview, I call into my office the paralegal who will be working on the case and introduce her to the client. I then tell the paralegal, in front of the client, a general outline of the case, and any problems, and how we will deal with those problems.

        Some clients will try to bully the staff person when the attorney is not around. This helps prevent that from happening.

        • LegalSecy says

          In my opinion – it depends on the attorney and it depends on the support staff…

          Clients should be aware that attorneys and support staff are one Team who is all working together to help the client… AND who don’t “keep secrets” from one another.

          Otherwise some clients (sometimes) may try to play games w. support staff vs attorney.

          I.e., “Don’t tell my attorney this, but…” (can’t even tell you how many times I’ve heard that phrase…) I always stop the client right there and let them know that I CANNOT keep info from their attorney that is relevant to their case.

          Sometimes younger (or more shy) & less experienced support staff need mentoring too – to help them learn how to handle such situations.

  5. Mitchell Goldstein says

    I have a checklist that was developed after getting burned a few times when I started out in bankruptcy more than 10 years ago (I took a long hiatus and returned).

    My checklist is designed to catch tax issues, nondischargeability issues, liquidation issues, income issues. I add to it as I find more items that are deal breakers or cause for higher fees.

  6. I disagree with the comment on not exempting a home that has no equity. In our district, the trustee will then ask if anyone is living there, and if they are (usually the clients!) start charging rent.

    • That isn’t the usual situation in our district, so your point of view would be relevant in your district.

      But even if it were the rule here, you could claim a $100 homestead, not a $26,000 exemption. He left a bunch of other stuff unprotected “protecting” an asset, in a Chapter 13, that has no equity.

      • Please explain the $100 homestead exemption stopping the trustee charging the debtor rent for living in the house.

        • Cathy Moran, Esq. says

          I propose the small claim of homestead so that you can avoid an involuntary lien that impairs that exemption. I don’t think the claim of homestead has anything to do with whether the trustee attempts to charge rent.

    • You mean the trustee charges rent for the debtor to live in the house? I’ve sure never heard of that in my short bankruptcy law career. What district is that?