Cut Rate Attorneys = Danger to Debtors

When people are in financial distress they feel that they cannot afford a “high priced attorney” to help them get a fresh start.  Unfortunately this leads many Debtors to seek out the help of the cheapest attorney they can find.  They call around and inquire about price and book an appointment with the attorney who promises them the lowest fees.  However, bankruptcy is a specialized field that requires an attorney who understands all aspects of the bankruptcy forms, practice and pitfalls.  Individuals who charge cut rate fees generally fall into one of two categories.  They tend to be either general practitioners who have an “experienced paralegal” running their bankruptcy preparation or attorneys newer to bankruptcy who believe that lower fees will help them break into the market.  Because of this, the attorney cannot afford to spend the time learning every aspect of their bankruptcy practice.  Additionally, they cannot spend enough time on each individual case to ensure that the client is fully protected.
The reason that this is such a huge danger to Debtors is that the bankruptcy code is full of pitfalls that are not always readily understandable by individuals in financial distress.  Newer attorneys and general practitioners generally do not understand that every question on the bankruptcy forms is being asked for a reason.  Every issue that comes up as a result of those questions needs to be addressed prior to filing to help ensure that the Debtor receives the best possible results.

To give an example, the other day I was down in court.  A new attorney at a “mill firm” had taken a case with a client who paid them $750.00 for their case.  The client had taken out a loan from a credit union for $3,000.00 within 30 days of filing.  Because the attorney did not understand that this was going to be an issue, the client was asked by the credit union to reaffirm the debt and pay it after the bankruptcy was complete.  If the client refused, the credit union would file an adversary case against the debtor and the debt would be found to be non-dischargeable.  Had the attorney caught this issue prior to filing the case, the Debtor could have been advised to wait until 90 days had passed from the date of the loan.  By waiting just 3 months from the date of the loan, the entire debt would have been discharged.  This means that the $750.00 fee that the attorney had charged had really cost the client $3,750.00.  A good bankruptcy attorney with a deep insight into bankruptcy laws could have been hired for far less and the client could have received a better result.
The next day I observed another case of malpractice.  An attorney at court had filed a case in which their client’s retirement had been rolled over into an annuity by their employer.  The attorney did not take the time to research the annuity to ensure that it could be protected under the current bankruptcy exemptions.  Because of this mistake, the attorney was unsure whether the Chapter 7 Trustee would liquidate the account.  The attorney had been paid $800.00 for the case, but the client was at risk of losing an additional $25,000.00 due to the attorney’s incompetence.
Finally, while I was in the hearing room waiting for my case to be called I overheard a Trustee asking a Debtor about $8,000.00 that the Debtor had deposited into her adult daughter’s account.  The mother was using the daughter’s account to store the money so that creditors could not get to it.  The problem. the trustee is likely to argue that the deposit into the daughter’s account was a fraudulent transfer to an insider and will seek to disgorge the entire $8,000.00.  If the Trustee is successful, the client will have paid not only the $750.00 that the attorney charged her, but also the $8,000.00 that she transferred to her daughter.
The bottom line is that a qualified bankruptcy attorney may cost a little more on the front end of the case, but is likely to avoid pitfalls that will cost you far more in lost assets and headaches at the back end of the case.