What Can Go Wrong in Bankruptcy? Let Me Count The Ways
After the great recession, lots of lawyers were out of work. Firms were not hiring. For-Profit Law schools were getting accredited all over the country, churning out barely qualified graduates in droves. All those student loans and no jobs to be had, so what do they do? They open up their own firms. “I will be a bankruptcy lawyer,” they say. They see a world of financial distress and figure “how hard can it be to fill out forms and charge people money?”
That’s when lawyers like me start making money… by fixing the messes that those lawyers get their clients into it. I have developed an entire adjunct to my 38 years of bankruptcy practice orchestrating bankruptcy malpractice cases. So what is that goes so wrong?
Bankruptcy law is complicated and it’s nuanced. Much of what it takes to be a good bankruptcy lawyer comes from the school of hard knocks. I remember a case early in my career where I represented an insurance salesman. The guy had minimal income and few assets. On paper, he looked like a good bankruptcy candidate. Turns out that he was going to start getting what is known as ‘residuals’ down the road… policies would renew, the insured’s would pay the premium and he would get a check. There is nothing in the bankruptcy code that talks about this. But the system considered these residuals to be assets, and he had to give them up. Only by seeing the system in action year after year, case after case, can a lawyer understand all the hidden land mines.
Outside of inexperience, one of the biggest problems is lawyers trusting their clients. Or just being lazy. I see it even in so–called ‘experienced’ lawyers. I have malpractice cases where lawyers don’t verify real estate titles, or look for pending inheritances, or review bank statements to see if clients moved monies around. The clients file bankruptcy, end up losing their discharge, or assets they thought they could keep, and their credit is ruined… forever. Bankruptcy ended up making their lives worse rather than better. The incidences of bankruptcy malpractice are on the rise. You can hire the cheapest lawyer in town. Or, as the old TV ad used to say… you can pay me now, or you can pay me later.