Thoughts on morality and malpractice in the American bankruptcy system
I have practiced bankruptcy law for 35 years. I have represented all sides: debtors, creditors, trustees, even retired bankruptcy judges. The American bankruptcy system is renowned for being among the best debt resolution systems in the world. It may well be. In my opinion, it is also inherently flawed. It is my opinion that there is endemic to the system: fraud, nepotism, corruption, mercenary agendas, and rampant immorality. I am guilty of being part of the system. And while I am confident I have done nothing illegal or committed any fraud, I freely admit that as a player in the system I have had to take what I consider to be inherently immoral positions…positions that were legally and ethically sanctioned, professionally appropriate, and mandated by my role as an advocate. Yet these were, in my mind, and I believe in the mind of anyone looking on from any distance, positions that were morally questionable.
And in addition to these moral conundrums, the system is further compromised but what appears to be a frightening and increasing level of incompetence. The purpose of this blog is to share stories from the inside and to invite others to share theirs and at the end of the day, help you to make your own judgment. I welcome your insights and your perspective, and at the end of the day, perhaps we will together provide a small contribution to positive change.
Ground Rules: Other than sharing judicially reported cases, I will not share names or allow aspersions to be cast on any person or entity. My purpose here is not to shame, embarrass, harass, or indict. The people with whom I share this profession are for the most part, well-meaning and with essentially good moral fiber, and I mean to do no person harm. Nor will I allow posts or comments that are personally directed, or designed to further personal vendettas. Finally, no client will be identified to preserve privilege and confidentiality.
The Tale of The Wiped Out Widow
I was representing a bankruptcy trustee. He directed me to take an elderly widow’s last dime from her. I did so. Every last bit of savings she had. She was a good person and had done nothing wrong.
According to the system, it would have been unethical for me not to do so. How can that be? First, as a lawyer, I am an “officer of the court”. That means I am duty-bound to follow the laws of the land and enforce them within my means. Secondly, I have a duty to my client. As long as he is not asking me to do something illegal ( even if arguably immoral) or for an improper purpose, I must do his bidding. Sure, I could say, “screw you, I’m not doing that”…In response to which, my client, who helps to pay my landlord and feed my children and those of the 10 people who worked for me, would say “screw you, you’re fired”.
So why did we have to pursue this poor woman? Her husband transferred their life savings, which they had held jointly, into a trust. And he did so from his death bed. And then he hires an idiot who tells him to file bankruptcy before he dies, so that his debts will be wiped out and his widow won’t be burdened. So he files. And under bankruptcy law, the movement of the assets to the trust is a fraudulent transfer. It doesn’t matter that the husband meant well…the law doesn’t work that way. So the trustee appointed to oversee the bankruptcy…my client….has a fiduciary duty to the creditors of the husband’s estate to collect any money he transferred. He can’t decide “well, that would deprive this poor widow so I won’t do it” I suppose he COULD say that, but then he would be removed as trustee and the federal overseers of the system would supplant him with someone else who would do what they are chartered to do.
Sadly, had the husband just left the money in the joint account, they would probably have been insulated from his creditors. So incompetent representation led to the downfall of a woman who this lawyer did not represent, but whose interests he should have protected. Incompetence will be a common theme through these writings. The problem is that incompetence does not serve as a defense. The widow could not successfully argue: "I should not be penalized because my husband hired a stupid lawyer”. And there lies the rub.