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?