Is Pre-bankruptcy Planning Good Advice at the Time, but Bad Faith Later?”

Every client deserves competent advice in order to plan their lives, but they also need to be able to avoid unforeseen results.
Helping a client protect important assets before filing bankruptcy has always been seen as appropriate “pre-bankruptcy planning. To quote Ret. Bankruptcy Judge Sarah Curley “it is malpractice not to provide competent pre-bankruptcy counsel”.

A good friend of mine, Larry Karandreas, said “are we at a time that good advice = bad faith?”.  This is a warning to all consumer debtor attorneys and their clients.  The adage refers to the reality that the consumer bankruptcy world is changing.  Reduced bankruptcy filings result in the bankruptcy trustees, their attorneys and the US Trustee’s Office having more time to spend nit-picking every bankruptcy case filed.  What was good solid good faith pre-bankruptcy planning yesterday may result in a bankruptcy action alleging “bad faith” today.

When a bankruptcy case is filed a trustee is selected (usually by a computer) to “over-see” that case.
The trustee’s job is to maximize the return of funds to the creditors.  There are trustee guidelines, but those can be open to interpretation.  If the debtor has repaid family, has a tax refund, transferred property the trustee may elect to pursue those funds, for the “bankruptcy estate”.
How are the bankruptcy estate funds used?
The funds are paid first to the trustee, then to the trustee’s attorney and, lastly, to the creditors.  The trustee is paid 25% of the first $5,000 collected, with a sliding scale from there.  The trustee’s attorney (if any) is usually paid all of their fees and costs.  How about the creditors?  Once the trustee and their attorney is paid, the balance is distributed to creditors (in a pro rata fashion, depending on the type of debt).  In many chapter 7 cases there is very little left to pay to the creditors.
How much are the trustees and their attorneys paid?
See – Link to Professional Fee Report
 
How Can I Help You?MUSINGS FROM DIANE:
The point of this blog?  A good bankruptcy attorney is supposed to give their clients good legal and practical advice.  Unfortunately, even if they give good advice and the client correctly follows that advice, bad things may happen.  Filing bankruptcy needs to be done carefully and with lots of forethought.  Some of the stakeholders in any bureaucracy as easier to deal with than others,  After all, we are all humans.  I don’t have the answer to this problem, other than to stand up to those who are over-reaching and force them into court.  We can only hope the judge will see what is really happening and send a message to the trustee and their attorneys.  Only time will tell.
 
We have several videos on this site.  Such as the following:

• “The Chapter 7 Process”
• “The Chapter 13 Process”
• “Arizona Exemptions”

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