Chapter 7 trustees plan to sue debtor’s lawyers for undisclosed assets, I was told yesterday. In the course of discussing the flood of rookie bankruptcy lawyers into local court rooms, this veteran trustee’s counsel was licking his chops at the opportunity to make creditors whole at the expense of the debtor’s attorney.
The stories of bad advice and dishonest behavior that accompanied that announcement were extreme, to be sure. But the view that attorneys representing consumer debtors have greater exposure for shortcomings in the schedules under BAPCPA is not so extreme.
Bankruptcy attorneys can get into trouble two different ways: one is indifference to accuracy. The more complicated your client’s economic life, the longer it takes to put together complete and consistent schedules. Taking time with the filing eats into slim profits. But fail to cross check the end product against the debtor’s input and against your notes and you risk avoidable error.
The second path to trouble is turning a blind eye to the debtor’s intentional omission of pertinent facts. The story my source recounted was a lawyer who told the client that it was the trustee’s job to find the assets, rather than the debtor’s duty to disclose them.
Remember the sergeant’s daily admonition in Hill Street Blues? ” Hey, let’s be careful out there.”
Some people have bad radar – they implicitly trust the client. After awhile, you learn to search the county records for judgments and property, google the client, look on his facebook page for photos like “my new boat!”. Warning signals manifest in story changing, continually bringing in additional unopened mail, having property titled in non-relatives. Maybe rookie attorney thinks that disclosure is solely client’s job. Maybe a warning to rookies is warranted before the trustee gets started.
I know of two instances in Kansas where chapter 7 trustees sued the debtor’s attorney. One case involved undisclosed assets. The other case involved which exemptions laws applied to a debtor who had moved from Texas to Missouri to Kansas within two years of filing bankruptcy.