Susanne Robicsek and I must be lawyer twins, separated at birth. She suggests that those with financial troubles consult a bankruptcy lawyer sooner rather than later. Amen.

Countless times a caller has asked me, should I wait until all of my savings are gone to file bankruptcy? And these folks didn’t mean, until my net worth is greatly reduced; they meant, until my bank balance is zero.

One has to admire the resolve of those who propose to pay on debts that they can never repay up to the point when they literally have nothing left. My advice of course is “no”.

Bankruptcy allows you to keep a collection of assets necessary for a fresh start. There is no bankruptcy entrance requirement that you be destitute or even insolvent to file bankruptcy.

So often I wish clients had come to me earlier: before they borrowed against their retirement to pay credit cards; before they took bad home loans that imperil their home; before they borrowed from one credit card to pay on another.

Susanne is right: it can never hurt, and often help, to get sound advice as soon as you realize you have a problem.

At least three homeowners called my office this week with a foreclosure sale set in less than 5 days and wanted to file bankruptcy to stop the sale. What is with people who wait until the last minute to look for a solution to losing their home? When I’m tired and cynical, I think they must believe in the genie in a bottle, willing to give them three wishes.

But the stories got stranger still, as we talked to these callers: two of the three wanted to stall the foreclosure so that they could complete a short sale. The sale was going to result in no money to the homeowner and they would lose the home, yet they thought they were ready to spend money to file bankruptcy for the privilege of selling rather than being foreclosed.

Historically, we have found that people who wait til the last minute make difficult clients. They put off unpleasant tasks and fail to appreciate deadlines, or even that their lawyer is bugging them in order to make things better.

I decided that I am not willing to take on emergency bankruptcy filings for procrastinators unless there is something to save by the exercise. Enabling a short sale doesn’t measure up.

Bankruptcy lawyer Kevin Gipson’s piece entitled Your Lawyer is Your Friend only scratched the surface of the relationship between a client and a bankruptcy lawyer. His point was that the client has to share the struggle to get a bankruptcy case on file and obtain a fresh start. The first job of the client is to show up. The lawyer can’t do it without an involved client.

Filing bankruptcy under the BAPCPA amendments to the bankruptcy code requires a substantial amount of information. None of it is esoteric; all of it was at one time in the debtor’s possession.

Calling for gobs of only marginally relevant information was one strategy that creditors included in the bankruptcy “reform” legislation to deter people who needed bankruptcy relief from getting it. They claimed it was to deter fraud; in reality, they counted on the debt ridden to be disorganized, stressed, and discouraged.
My office has encountered a rash of clients lately who can’t seem to get the last little bit of information to us, or who neglected to tell us about the second job or the rent paying roommate. As Charlie Brown in Peanuts said, Arghhhhhhh!

To file a successful bankruptcy, the client has to tell the bankruptcy attorney everything about their income, their household, and all of their financial doings. The reason you hire a lawyer is to guide you through the bankruptcy maze. Even the most experienced lawyer can’t do that without the complete picture.

I tell clients that the only fact that can hurt them in bankruptcy is the one they kept from me.

If a client discloses something that puts the success of the case at risk, I will stop and discuss the issue with the client. Perhaps we wait to file, file a different chapter, or only one spouse files. Only rarely does some single fact make filing bankruptcy unwise. But if I file a case without all the facts, it’s like playing cards with only a portion of the deck.

Treat your bankruptcy lawyer like your confessor: put it all out there and let a professional find the way to bankruptcy relief.

Bankruptcy works on disclosure: in exchange for full disclosure of assets, debts, and financial history, creditors with notice of the case are bound by the outcome, hopefully the discharge. Disclosure costs the debtor nothing and it insulates the debtor from charges that he has concealed property of value or otherwise been less than candid with the court.

My colleague Jay Fleischman wrote about the consequences of failing to disclose even the right to sue for a violation of consumer law. My questionnaire for clients says repeatedly that you must disclose all of your assets, yet I get back questionnaires showing no clothing (did they come to my office in a barrel?), no bank accounts, no furniture, no car, etc.

Sometimes, they don’t have the kind of property in question, but more often, they made assumptions. They assumed that 1) if the account was overdrawn, they didn’t have to list it; 2) if the clothing was worth little, they didn’t have to list it; 3) if the bank had a lien on it, they didn’t have to list it. The erroneous assumptions go on.

I declined representation in a case this week that promised a five figure retainer in large part because I believed that I could not get the prospective client to take seriously the need to be open and candid with the court.

If you want to keep any asset, tangible or intangible, after the bankruptcy, list it in your schedules. That way, you also get to keep the discharge, the real prize in this exercise.

My colleague Brett Weiss echoes my experience with those in financial trouble: they wait far to long to see a bankruptcy attorney. Many have long since passed the point where they can hope to pay off their debt. They have invaded or neglected their retirement savings in a futile struggle to keep up with their debts. The minimum payments have only postponed facing financial reality.

Those lobbyists and legislators who argued that too many people took the easy way out of financial trouble via bankruptcy clearly never met real debtors who would rather be anywhere else than talking with me about admitting financial failure.

An amazing number of clients are willing to spend the last penny in the bank making payments before declaring bankruptcy.

Those that say that consumers take bankruptcy too lightly simply haven’t talked to anyone in financial distress.

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.

How many of us hit the internet when we need information? The computer has replaced the library as our first response to an unknown. Linda Hamm writes about the dangers of relying on bankruptcy “information” found on the web
on the Bankruptcy Law Network. She reminds us that not everyone who write on the web knows what they are talking about.

A second problem with internet message boards is that the question posed contains only the facts, or the view of the facts, that the poster thinks are important. So often, things that the layman overlooks are the issues that drive the legal result. That is why the give and take of an interview with a lawyer is essential to pin down the applicable law.

It is essential for those researching their bankruptcy options on the internet to see time online as background for a meeting with a lawyer. Become familiar with the terminology and the concepts. Create a list of questions to discuss with counsel. Don’t rely on what you read on the internet.

I wrote more on this all too important subject at the Bankruptcy Law Network. Clients seem intent on making their attorney’s lives more complex.

Cathy Moran

There is a widely held belief that if an asset isn’t titled to you that it does not have to be disclosed in a bankruptcy filing and the asset will be “safe” from the bankruptcy trustee and from creditors. Wrong, wrong, wrong.

Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts the debtor’s discharge at risk. Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.

For well more than three hundred years, the law has contained prohibitions on fraudulent transfers. A transfer of an asset by one who has debts constitutes a fraud on creditors if 1) the transfer is for less that fair consideration; or 2) was made for the purpose of putting the asset beyond the reach of creditors; or 3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.

The usual remedy against the person who gets the asset is generally an order requiring the return of the asset or a money judgment in the amount of its value.

In bankruptcy proceedings, the trustee has the rights of the debtor’s creditors to recovery any property that the debtor wrongfully transferred. The bankruptcy code has a statute empowering the recapture of transfers made within a year of filing and the trustee can use the state law fraudulent conveyance law which may have a longer statute of limitations. In California, that statute of limitations is four years.

So a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney. Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things. Yet people again and again ask “what if I put it in someone else’s name?”.

As long as they ask me, they have a chance to get a discharge.

Cathy Moran