What Is It Like to Practice Consumer Bankruptcy Law?

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What is it like working with consumer bankruptcy clients?

This is a question I get more from other lawyers than I even get from laypeople. There is a mystique about consumer bankruptcy that some lawyers just don’t get. I think it’s part technical and part emotional. Let’s explore.

I have practiced bankruptcy law for most of the last 25 years. Even before I went to law school, I spent a number of years as a deputy clerk working for the bankruptcy court in my hometown and as many years working for a boutique law firm there as a bankruptcy paralegal. Even after law school, I spent a challenging and rewarding year as a law clerk to the Honorable Jacques Wiener, judge on the federal U.S.Fifth Circuit Court of Appeals, which I followed up with a year clerking for the Honorable Steven Felsenthal, then Chief Judge of the U.S. Bankruptcy Court for the Northern District of Texas.

I have seen the practice of bankruptcy law from many different perspectives, and I have seen a lot of changes over those years. Changes in the laws, changes in the way we conduct and manage our cases, and even changes in the way we market our law practices. When I started, we were filling out bankruptcy petitions - form by form - with IBM Selectric typewriters. Once those forms (produced in at least triplicate, often by employing carbon paper inserts) were typed, proofread and signed, they had to be hand delivered to the Clerk’s Office of the District of Bankruptcy Court where they would be stamped in with a time clock (between the hours of 8:30 am and 4:00 pm, Monday through Friday), placed in file folders and administered by hand.

The Changing Profession of Bankruptcy Law

Many newly hatched fledgling lawyers will appreciate the fact that computers and bankruptcy software rule the roost. Now we use wonderful programs like Bankruptcy Pro and Best Case to keep and track the information needed for each case, manage our dockets and produce our documents, which are converted into PDFs and filed over the Internet 24 hours a day, seven days a week, with each court’s Electronic Case Filing system.

For those of you thinking about going into bankruptcy as a specialty or as a complement to other practice areas, you will wonder what a bankruptcy practice looks like today.

A Litigation and Transactional Practice

I always tell people who ask that bankruptcy is part transactional law and part litigation. The transactional law includes those specialties that are sometimes referred to as “inside” or law office practices. They consist heavily of work product that results in documentation of some kind. Contracts, securities, tax, estate planning, corporate, real estate, intellectual property and employment are some of the areas that many would consider transactional law because the lawyers who practice in those areas often find that they rarely if ever go to court.

In contrast, an attorney who practices litigation will often find herself in court, sometimes on a daily basis, arguing motions in preparation for a trial, or conducting the trial itself. And, when not in court, she’s working on disputes that could either end up as court cases or will be settled before they are filed. Therefore, much of what a litigator does is geared toward the assumption that the dispute will end up before a judge.

Although the “office” practices listed above can and do include disputes that lead to court cases (think probate will contests, contract breaches, employment discrimination, etc.) that require the expertise of a litigator, other specialties are primarily interested in resolving adversarial situations. These would include criminal law, commercial litigation, family law, personal injury and medical malpractice.

A bankruptcy practice melds both of these worlds. Bankruptcy is an inherently adversarial process. Debtors, those people and entities who file bankruptcy cases, intend to discharge (eliminate) liability on a debt they owe or reorganize the terms of the debt. This does not necessarily comport well with the desires of the creditor. Therefore, Congress has enacted a system of laws, called the bankruptcy code, to govern the process and a court to arbitrate it.

While the adversarial nature of bankruptcy makes it a litigation practice, it is also highly transactional. The process of applying the bankruptcy code requires the debtor to provide a full spectrum of information about his debts, assets, financial dealings over the previous few years, income and expenses. This information is consolidated into a series of documents called the bankruptcy schedules and statements.

Schedules are filed in every bankruptcy case. The time necessary to gather and put that information into a form as required by the bankruptcy code will often be the bulk of the time the lawyer and her staff spends with the case.

The bankruptcy code is complex, but not quite the labyrinth you’ll find in any tax code, however. It is detailed in part to set out the process as clearly as possible so that much of the decision-making is avoided and what is left is streamlined. For instance, instead of a judge having to separately decide whether each individual debt is discharged, the bankruptcy code in effect states that every debt is discharged unless it falls within a small subgroup of debts, or unless a creditor objects to discharge.

The Initial Consultation

Most cases will start with an initial consultation. Expect during the initial consultation to

  • Have the debtors sign the initial disclosures required by Congress.
  • Allow the client to vent and providing reassurances. This is at least 50% of the initial consultation. The attorney gains the trust of the client with her calm but authoritative manner. Clients need to know that the attorney knows her stuff. Attorneys should also be aware that about 50% of what they tell their clients during this meeting will not register. I always suggest that the attorney keep a cheat sheet with the important points in an easy to read bulleted list for the client to take away from the meeting.
  • Assess the client’s goal, for example, eliminate unsecured debt, save a house from foreclosure, save a car from repossession. 
  • Elicit basic debt, income and expense information and run a preliminary means test to get a rough idea whether the client will qualify for Chapter 7
  • Learn from the client whether other debts, like nondischargeable taxes or domestic support obligations, might make a Chapter 13 case preferable. 
  • Explain the bankruptcy process. 
  • Review worksheets that the client will use to gather information necessary for the schedules. Do not give the client a blank set of schedules. Those forms are extremely intimidating and full of legalese. There are many examples of worksheets on the Web. The major bankruptcy software vendors will also include a worksheet packet in their forms library. Here’s an example of a set of worksheets. Here’s another. 
  • Quote fees and court costs and include a frank discussion about how the client will come up with the money, and an explanation of any retainer agreement.

Using Paralegals

A word about paralegals. Many firms, especially high volume filers, use paralegals to screen clients. While this is not inherently a bad practice, potential clients will not appreciate the cost savings, even if you try to convey that it will save them money in the long run. Most have never met an attorney professionally before. They want to know they’re in good hands and that they attorney cares. They’re hiring you, not the paralegal, after all. So, even if you use your staff to make the initial contact or help gather the information, it is your ethical duty to your client to discuss those items in the initial consultation that could even hint of legal advice, like application of the means test, choice of chapter, fees and the decision to represent.  

Once the client has paid the fee, provided all the information and documents necessary to file a case and the documents are produced, it will be necessary for the lawyer to review the documents with the client. Note that I did not say to give the documents to the client to review. The best practice (the only practice in my opinion) requires that the attorney sits down with the client and review each page to explain what the client will be attesting to when the client signs the documents under penalty of perjury.

Filing Documents and Discharge of Debt in Bankruptcy

Bankruptcy applications, like Bankruptcy Pro and Best Case, are not essential to an efficient practice. If the attorney has access to a typewriter, she can still type each page by hand. But who would want to? These programs have interactive screens that can take one piece of information and populate many forms. They contain up to date figures for exemption limitations, median incomes, and expenses for the means test. They also contain local forms, like special Chapter 13 plans. They convert the completed forms into PDFs and even allow direct filing with the court from the application. Most will also contain a word processing program for creating forms like motions, orders, letters, worksheets, and checklists.

Filing the Papers

No most last minute runs to the courthouse to get in under the wire the day before a foreclosure. Now, all attorneys are required to file electronically through the bankruptcy court’s electronic case filing (ECF) system. Usually integrated into PACER (the court’s information website that allows access to case dockets and public documents), ECF is a fast, efficient upload of every document required to be filed in a case.

Court Time

In a typical Chapter 7 straight bankruptcy case, the debtor will probably never set foot in a courtroom to testify before the bankruptcy judge. That doesn’t mean that the debtor never has to give testimony. First and foremost, debtors sign the bankruptcy schedules under penalty of perjury, as are most documents that the debtor will file in court. Second, the court assigns a trustee to each Chapter 7 and Chapter 13 case (Chapter 11 cases are handled differently). The trustee has many jobs, but one is to see that the information provided the court is accurate and complete. The trustee will preside over a meeting of creditors in the case. For most debtors, ironically, there are no creditors at the meeting. But it does give the trustee an opportunity to question the debtor about any discrepancies in her schedules or to ask for clarification or additional documentation, if helpful. That testimony is given under oath and becomes a part of the record of the case, and can be used later to support or to rebut later testimony. The meeting of creditors, however, by law is never conducted by or before a bankruptcy judge.

The debtor’s attorney will accompany the debtor and sit with the debtor during the meeting of creditors, and in fact should be with the debtor for any contact he or she might have with the trustee. Although most of the questions at the meeting will be routine, the attorney should prepare the client ahead of time on what to expect and should be ready to question the debtor to clarify or provide additional information to ensure complete and accurate records.

The 60-Day Waiting Period

After the meeting of creditors, the law prescribes that the debtor must wait 60 days before the court will issue the discharge. This is not, however, just a waiting period. The trustee and creditors are using this time to review the debtor’s papers, investigate and decide if further action is necessary.

The trustee will be considering whether the exemptions that the debtor claimed are appropriate in type and value. If he has an issue, he can request additional information from the debtor. He can file an objection to exemptions if he has an issue that isn’t immediately resolved. He only has 30 days after the conclusion of the meeting of creditors to file the objection.

If there is non-exempt property that the trustee can liquidate for the benefit of the creditors, he will start the process of marshaling the assets. This process is independent of and can go on long after the court issues the discharge.

A debtor could lose her right to a discharge if she commits a fraud on the court, abuses the bankruptcy process by filing a Chapter 7 when she can afford to make payments in a Chapter 13, refuses to cooperate with the trustee, fails to attend the meeting of creditors or for other reasons. The trustee will use this time to determine whether grounds exist to support a motion to deny the debtor’s discharge.

During the 60-day waiting period, the creditors can also be busy. Most unsecured debt is dischargeable without question, thanks to the clarity and thoroughness of the bankruptcy code. Likewise, some debts are automatically not dischargeable, like recent taxes. Some debts fall in the middle. Usually, they are discharged unless the creditor or the debtor brings it before the court. For instance, student loans are usually not discharged, but the debtor can bring it before the court and ask that the student loans be declared discharged. A creditor can file an action in the bankruptcy court to have the debt declared not discharged. These might include recent luxury purchases or cash advances or debts that the creditor believes were obtained by fraud.

Unless extended, the deadline to file an action to determine dischargeability of a certain debt is 60 days after the conclusion of the meeting of creditors, hence the deadline.

While the creditors and the trustee are busy assessing the case, the debtor’s attorney gets a breather, right? Not exactly. If the debtor has secured property, she is required to file a form with her schedules called a Statement of Intention. That statement tells the court and creditors what she intends to do with the property: surrender, reaffirm, or redeem. The Statement of Intention must be filed no later than 30 days after the case is filed or by the date of the meeting of creditors, whichever is earlier. The bankruptcy code requires that action be taken on the Notice of Intention within 45 days of the meeting of creditors. Usually, the creditor will initiate any action to surrender or redeem the property (pay its value in full satisfaction of the debt). Creditors usually take the lead on reaffirmations, providing the form to the debtor’s attorney, who will review it and counsel the client on whether it is in the client’s best interest to reaffirm or continue paying that secured debt. Attorneys are required to certify on the reaffirmation form that the reaffirmation poses no “undue hardship” on the debtor. If the attorney believes otherwise or for whatever reason cannot certify, the client can still sign the form, but the court will schedule the reaffirmation for a hearing so that the court can determine for itself whether the reaffirmation is appropriate. See The Discharge below.

If the trustee will be gathering and administering assets, the trustee will ask the court to send a notice to creditors to file claims. Normally, the trustee will review and object to improper claims, but It may also behoove the debtor’s attorney to do the same. It is possible, although admittedly rare, for enough claims to be knocked out that the remaining assets—those not necessary to satisfy claims—could be returned to the debtor.

The Discharge

In days past, courts would require that the debtors attend a court hearing sometime shortly after the 60-day waiting period had run in order to qualify for the discharge. At that hearing, the judge would usually give the assembled debtors a pep talk about their “fresh start”. That has gone the way of over-the-counter document filing. Now, the only debtors required to appear in court at the time of discharge are certain debtors who are reaffirming debts. Those are pro se debtors (not represented by attorneys) or debtors whose attorneys have refused to certify that the reaffirmation poses no “undue hardship” on the debtor. Although it is not strictly necessary for the attorney to attend the hearing on the reaffirmation, some will. Unfortunately, this can put the attorney into an awkward position of conflict with their on debtor, especially if the judge asks the attorney to explain why she refused or could not certify as to “undue hardship.”