When credit is a commodity, family are friends, and creditors are not, strange things happen.
Trouble is, our clients don’t think the happenings are strange. Bankruptcy lawyers end up moving lots of “stuff” to get to the real story.
Street law
Arkansas bankruptcy lawyer Kathy Cruz uses the marvelous phrase “generally accepted people practices” to describe the kinds of transactions ordinary folk engage in when dealing with credit, creditors, and possessions.
People go on and off title to assets to get a loan or to distance an asset from a creditor. They buy things on credit for family member to pay for, and they add their children to their accounts instead of drafting a will. They think nothing of these kinds of deals because they involve family or friend. The move makes their financial life smoother.
Our clients are usually clueless that these transactions are transfers within the meaning of the Bankruptcy Code or that the form of title brings someone else’s property into their bankruptcy estate.
Worse, clients are capable of holding two contradictory legal views at the same time: “It’s not really my house, it’s just in my name for when my mother passes away” exists along side the view that “I gave my car to my brother so my creditors won’t get it”.
Bankruptcy law
The law, as we lawyers know it, sees these “people practices” differently. Fail to uncover them before a case is filed and you and your client may feel like you got run over by that steam shovel. How do we uncover those transactions that the client doesn’t see as transactions?
Part of my intake procedure consists of questions like these:
- Have you gone off of title to any asset?
- Are you holding anything that really belongs to someone else?
- Has anyone died and left you an inheritance you haven’t collected?
- Are you on title to anything that really belongs to another?
- Is anyone holding assets for you in their name?
- Have you taken a loan or cosigned a loan for someone who was unable to get credit themselves?
- Are you on anyone else’s bank accounts?
This list isn’t exclusive but it’s a start on digging out the whole story before schedules are filed under penalty of perjury and before it emerges for the first time at the 341 meeting.
I just had one where the real estate broker told my insolvent client’s parents to add them title rather than having to go through the time and expense of having a will or living trust drafted. Brilliant. I am contemplating the negligence claim against the broker.
This is a great point, Cathy. Personally, I try to run through these types of questions and many more at least 3 different ways with my clients before I file their case. It’s not that I suspect they might intentionally hide something. Instead, I believe that they just don’t know that they are. Regularly, I get clients to disclose new information on my post-petition-signing questionnaire. No harm, no foul, and it saves us the trouble of trying to amend the Schedules after the fact.