Should You Hire an Attorney To File Bankruptcy? New Dangers Exposed in Shapiro v. Henson

Debtors filing Bankruptcy in Fresno metropolitan area can save about $1000 by filing a bankruptcy without an attorney.  Another cheap alternative is to hire company that helps debtors complete bankruptcy petitions. By law, they can only charge $125 per petition.  In some simple cases, this strategy can make sense.  The problem, however, is that you do not have the expertise of an attorney to avoid the many pitfalls in bankruptcy.  One nuance is to file bankruptcy with checks from your bank that have not cleared.  Please read on for the details:

A big surprise happened in Shapiro v. Henson.  It cost the Barbara Henson $3000 that she did not expect. The sad part was that she was represented by an attorney who had done what lots of other attorneys were doing.  Here is what went wrong:

Ms. Henson hired an attorney to help her file Chapter 7 Bankruptcy.  Prior to filing bankruptcy, Ms. Henson wrote several checks from her Bank of America checking account.  On the day she filed bankruptcy, many of the checks had not cleared the bank.  Thus, at the time she filed bankruptcy, her checking account showed that she had $7000.  In the subsequent days after she filed, the checks cleared and her checking account showed less than $800.

After filing bankruptcy, a trustee was appointed.  One of the job's of a trustee is to find assets, sell them, and give them to the trustee.  In most Chapter 7 cases, there are no assets.  However, the trustee assigned in Ms. Henson's case tried a unique approach that surely surprised her attorney and all of the other bankruptcy attorneys.  He brought a motion against Ms. Henson demanding they she turn over the money from the Bank of America checks that had not cleared on the day Ms. Henson filed bankruptcy.  Ms. Henson's attorney fought the trustee and won at the lower court levels.  The trustee was persistent and filed an appeal.

At this point, NACBA joined the fight on behalf of the debtor.  The outcome would have a devastating effect on debtors in California.  NACBA stands for the National Association of Consumer Bankruptcy Attorneys.  Thousands of bankruptcy attorneys throughout the country, including yours truly, contribute money to help fight cases that would have a bad outcome for our clients.  

Ms. Henson lost.  NACBA argued that Ms. Henson did not have possession, custody or control of the money that was in the checking account at the time the trustee filed his motion. The appellate court ruled that it did not matter.  Rather, the trustee can file a motion for turnover of property that was in possession of the debtor at any point during the bankruptcy case.

The lesson prudent bankruptcy attorneys take from this case is to make sure that their client's checks the bank accounts before filing bankruptcy.  Then, debtor should beat the test she did not have possession or control, during, the case.  I just can't see how a debtor without an attorney can stand a chance at knowing all of the small ins and outs of the bankruptcy code.  

Attorney Ken Jorgensen is located in Clovis, California.  He handles personal, property and business disputes, including bankruptcy and eviction cases.  You can find out more about Ken on Facebook, or at his websites, www.fresnolawgroup.com and www.fresnobankruptcylawgroup.com.  He can be reached at [email protected] or by telephone at 1-559-324-1882.

Photo Credit: https://www.flickr.com/photos/tristanf/  "Danger Goldfinch"