If unscheduled assets are discovered by the trustee, can you dismiss a Chapter 7 case?
The question came from the audience of my presentation to bankruptcy lawyers on techniques for the initial interview with the client. It boiled down to: what are the consequences for not doing a skillful job of extracting the whole story from the client.
Getting out of Chapter 7
The consequences, in my experience, are dreadful: you cannot usually dismiss the case, and your client’s choices are surrender the asset, buy it from the trustee, or convert the case and pay its net value to creditors in a Chapter 13.
Sometimes, you may be able to amend the schedules and assert an exemption in the omitted asset, although there are cases that hold that the debtor can’t claim an exemption in unscheduled assets.
What a bankruptcy filer needs to understand
I liken the decision to file Chapter 7 as walking through a door that locks behind you: once having elected to file bankruptcy, the debtor can’t bail out when bankruptcy becomes inconvenient.
After all, rule that permitted a cost-free exit from bankruptcy when caught gaming the system would not promote honest disclosure. There is a reason that my questionnaire for the client says, at the top of the page about assets: List it or Lose it.
The bankruptcy attorney’s mission is to convey that sense of irrevocability to the client before the chapter 7 bankruptcy is filed so that the entire story comes out in advance. If you, as the attorney, have a full deck of cards, you may advise that the client not file bankruptcy, or at least, not now. You may suggest Chapter 13, where the right to dismiss the case is absolute if the case wasn’t converted from another chapter.
The bankruptcy lawyer take-away
My anthem to bankruptcy lawyers is to spend time, face to face with the client, explaining and exploring. Listen carefully for clues about assets and situations; ask open ended questions, then go over the draft schedules carefully before signing. Once the case is filed, your options decrease.
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I couldn’t agree more with spending the time necessary to get the job done right. Face to face time with the client will often get things in the open that were not so obvious to the client upon the first meeting alone. You don’t want to be the attorney at the 341 sitting next to your client when they say: “I didn’t know I had to list that.” I’ve seen it too often to not be aware that it is my responsibility to get that point across before the case is filed. As a practice bonus, the Trustees tend to be easier to get along with when they know that you spend the time to make things clear in the Schedules and that completeness is a focus of yours. Sadly, I sometimes hear other attorneys brag that they may spend a total of 30 minutes with their clients per case that they file. Their legal assistants do all of the real work in their office. How does that fulfill our obligations under the Code when we sign the Petition below our clients?
Shooting for the shortest possible time with the client is a race to the bottom. Quite apart from whether you succeed in getting all the necessary information and charting the best course of action, how are you going to convince the client that you’re the world’s greatest that he can fearlessly recommend to those in his circle? The attorney becomes no more than a marching band passing by.
Just a thought…
“Their legal assistants do all of the real work in their office.”
Yes, we all know about bankruptcy mills where relatively untrained “technicians” who are called Legal Assistants do most of the work and the attorney of record may only ever see the client at the 341 Meeting (if then…). That is definitely Not Good. Ever.
BUT … a word about Legal Assistants …. Legal Assistants come in all manner of flavors, stripes and degrees of professional preparation. In my area there are some Legal Assistants who hold advanced professional degrees (i.e., Masters degrees or higher, or even Law degrees from reputable law schools), who have hundreds of hours of continuing professional education, updated regularly, and have worked for many years under the direction and supervision of very highly regarded consumer bankruptcy attorneys. Some are more like advanced nurse practitioners in the medical field than like ill paid and largely untrained “nursing assistants” (to use an analogy). Granted, such highly prepared Legal Assistants are still not attorneys and are no substitute for an attorney.
However, I would like to challenge the legal profession to think about how these highly educated and highly experienced Legal Assistants could best be used in the context of a law practice. I do think there is a place for experienced legal paraprofessionals – if well defined, well circumscribed and well supervised.
Unfortunately – if there is no decent career path other than going to Law School and becoming an attorney themselves for highly motivated, highly educated and highly experienced Legal Assistants, what happens is they eventually leave the field OR (alas) some may attempt to set up their own independent practices (lacking any other significant career path) — which I personally do not think is good for anyone (the practitioner who goes this route OR the “clients” who attempt to use these services OR the legal field in general).