on the Bankruptcy Soapbox

I saw a promotion for savings on the TV last night.  ING, bless their heart, was touting the benefits of savings.

One of my criticisms about our consumer society and the level of financial literacy in this country is the huge expenditure of time and talent to get us to spend more.  There is no counter-campaign reminding us that we need money in the bank for emergencies and retirement.  Media has the predictable result of skewing our thinking about money.

So, hats off to ING and the savings account.

Doug Jacobs’ post answering the question “do I have to file on all of my debts”, pushes my semantics button.  Doug was, in all innocence,  paraphrasing clients, who imagine that bankruptcy represents a choice by the debtor of which debts he wants to discharge.  Wrong!

The popular usage of “filing bankruptcy on” certain debts suggests that debtors get to pick and choose which debts are listed in their cases.  Not!

People file bankruptcy;  people don’t file “on debts“.  A person who is a debtor in a bankruptcy proceeding is expected to list all of their debts, under penalty of perjury. At the beginning of the case, the debtor does not get to pick and choose which creditors are included in the filing.

The debtor can elect to reaffirm debts that they want to repay and are willing to be legally liable for.  Better, from my perspective, a debtor can voluntarily repay debts they feel morally obligated to repay, without a reaffirmation.

Words are important to lawyers;  words shape and reflect how we think about the world.  Make my day by getting this terminology right.

My colleague Jonathan Ginsberg started a conversation on the Bankruptcy Law Network about a debtor’s duties after the bankruptcy case is filed. His message to debtors was “be engaged.” I tell clients that I can file a case “with you” but not “for you.”; in other words, I cannot do it alone. There’s more I want clients to know.
My first clarion call is “read what the court and I send you“. I don’t send my clients documents for the exercise; I send them so the client can see what is going on and what I have done on their behalf. Much of a bankruptcy case plays out in the paper.

Read what you have signed so you can point out any errors or omissions. Innocent mistakes that the debtor identifies and corrects are seldom a problem in a case. Mistakes are common and harmless if fixed.

Keep me posted on major events in your life: have you moved, changed jobs, become entitled to an inheritance, gotten too sick to work for a while. Each of these things bears on bankruptcy issues.

Ask me questions about things you don’t understand. I can’t tell that you are confused unless you tell me. There is no reason you should understand bankruptcy the first time through. I’m still seeing subltities after 27 years of doing this. So let me know when you are lost. At bottom, there are decisions in a bankruptcy case that only the client can make, so you have to have some understanding of the issue to make a good decision.

Respond promptly when I ask for documents or information. A bankruptcy case moves on a short timeline and delay can be harmful.

Don’t fret unnecessarily. Bankruptcy may be new and strange to you, but my staff and I are experienced and most bankruptcies are routine. There is no reason to lay awake nights terrified of some horror you’ve dreamed up. If it worries you, ask me about it.

There is more on the statutory duties of a debtor on Bankruptcy in Brief.

I saw a client this week who insisted that his tenant’s debt to him survived the bankruptcy “because it was listed on Schedule G”.  The debtor “explained” to my client that Schedule G was the list of debts the debtor didn’t seek to discharge.

Get your legal advice from your adversary, your brother in law or the internet and be prepared to get a surprise.  Schedule G is not a list of debts the debtor wants to continue paying on; it’s a list of executory contracts and unexpired leases.  The debtor’s obligation for each of those debts is discharged just as the debts listed on Schedule F.

The fund of information in our world is immense, and more accessible with the advent of the internet.  Not all of that information , however, is equally reliable.  If anything important to you rides on the information you seek, seek out a lawyer for some input.  Free legal advice can be really costly, and the cost of a lawyer to fix the situation is usually far greater than the cost of getting it right the first time.

From the questions I answer from clients in my office and netizens on Lawyers.com, lots of people think that bankruptcy trustees are the last word in the bankruptcy world.  Not so:  the trustee is an interested party, generally tasked with representing the creditors as a group and ensuring that bankruptcy cases comply with the law.

But if a dispute arises, say about the allowance of an exemption or the application of the means test, and the debtor and the trustee can’t resolve the difference, it is the bankruptcy judge who makes the call.