The Tale of the Lost Education

Part II of the Bankruptcy Insider

A young couple comes to me having filed bankruptcy with a lawyer I have never heard of (since the Great Recession, there are many of those these days. More on that down the road). Seems this lawyer “forgot” to advise this couple that the inheritance the mother left the husband, which he had recently put into his child’s college fund, was a) something that should have been disclosed and b) belonged to the bankruptcy estate…in other words, they were going to lose it upon his filing. The first they heard about this problem was at their trustee interview hearing…called a “341 meeting”, where the trustee told them they had a problem. “Why didn’t you tell us this might happen?”, the horrified clients asked their newbie lawyer. “I thought you told me she died more than two years ago” he responded. Which, you should know, is completely irrelevant.

So they come to me to see what they can do. They are working people struggling to make a living and hoping they can give their children a better life. This small amount of money will give them a chance to give their oldest a college education. Their only chance. I suggest we seek to dismiss the case. The standard is whether the creditors will be prejudiced. How would they be prejudiced? If the case is dismissed, the debtor gets no discharge, the creditors are restored to all the rights they had before the filing, and they can go after the money if they want it. No harm, no foul. We file our motion. The trustee objects. Why? Ostensibly to argue that she, the trustee, is best suited to “administer” the funds for the benefit of the “creditor body”. In reality, in my opinion, the trustee won’t dismiss the case because a) the trustee makes a commission on the funds collected and b) the trustee gets to hire a lawyer to fight me and the lawyer gets to make money. And it gets worse. The trustee, who is a lawyer, gets to hire her own law firm to do the legal work. Yep, that’s right. She makes money coming and going. And that is absolutely legal, sanctioned, and common practice in the American bankruptcy system.

My clients had no money to fight the battle. They had no choice but to surrender the money.