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Possible Ineffective Bankruptcy Counsel?

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Possible Ineffective Bankruptcy Counsel?

Last year I had to file for Chapter 7 personal bankruptcy. Having never done this before, I retained a bankruptcy attorney that I assumed would be an expert in doing this. While the bankruptcy was discharged without any real difficulty, it seems as if the instructions and assistance he provided had some serious flaws in them, including:

 

- instructing me to include all accounts in my bankruptcy - I'm not sure if this was the correct thing to do, especially since now accounts that I had a $0 balance with and could have simply closed are showing on my credit reports as "included in bankruptcy" and possibly lowering my credit score

 

- telling me to include all of my student loans in the bankruptcy (despite that fact that I don't think these can very easily be discharged by bankruptcy) - he then appeared very unsure of whether they were really discharged or not, and even worse, by including them in the bankruptcy, it triggered clauses in some of the contracts that allowed them to be paid by the loan insurers and then full payment was expected from me to the loan insurers. While it's very possible this might have happened anyway, at the least I would expect him to alert me of this ahead of time* so I could prepare or see if there was any way to mitigate these issues (since now I'm dealing with collection agencies)

 

*And yes, I would expect that in today's day and age, a bankruptcy attorney would be aware of this caveat with respect to student loans - is that expecting too much?


Anyway, I'm just wondering if I have any recourse against the attorney, or can do anything to try and fix some of the above problems? Any help is greatly appreciated! Thanks.

Message 1 of 9
8 REPLIES 8
StartingOver10
Moderator Emerita

Re: Possible Ineffective Bankruptcy Counsel?

Like any profession, the skill and ability of the professionals varies widely.  I have found that to be especially true with service type industries (attorney's, Realtors, loan officers etc).

 

The usual advice is to interview several bk attorney's and use the one that has the best experience for you and your specific situation. Having said that, it is sometimes difficult to know who is the best especially when entering into an area for which you have no experience. That is the good thing about these boards. Most of us have been there and can provide some additional information that may (or may not!) help you with your decision.

 

Since you have already filed and been discharged, your best bet is to begin your rebuilding process. Read this thread to start: http://ficoforums.myfico.com/t5/Bankruptcy/HOW-TO-From-BK7-discharge-to-700-in-24-months-or-less/td-...

 

As to your questions:  1) Yes, it would have been slightly better to have closed all of your zero balance accounts prior to filing bk. However, if they were open and you filed it is likely that the creditors would have closed the accounts anyway as they all subscribe to a bk list and if the SS number matches, they close the account. occasionally one slips through - you can see that on these boards. That is why the suggestion is to close zero balance accounts - so you don't risk iib on the tradeline after you file. Having said that, I'm not sure the bk attorney can actually give that advice. Remember they are an officer of the court. There may be some items they are prohibited from discussing...idk, maybe an attorney reading this can answer from a legal perspective. My perspective is from a consumer POV.

 

2) Student loans - do what you have to do to get those back on track. The attorney won't be helpful with this - they don't really seem to get involved or even know how to rebuild after Bk.

 

3) IMO it isn't worth it to go after the attorney for these particular grievances.  There are times it is worth it - but not for what you have listed in your post (IMO). It would keep the negative energy around you and what could be the ultimate result? Not much. I bet if you read his retainer agreement he has some sort of limited liability clause in there that protects him from everything except negligence. Put the negative behind you and go for rebuilding. You will feel much, much better in a relatively short period of time (3 months or so).

 

 

Message 2 of 9
ezdriver
Senior Contributor

Re: Possible Ineffective Bankruptcy Counsel?

About the zero-balance accounts, technically the attorney is on solid ground if he/she included every tradeline that appears on your credit report ... including zero-balance tradelines.

 

Technically. a trustee can order all credit card accounts closed ... even zero-balance ones. They often don't bother because a creditor's protection under bankruptcy code does not extend to any debt that occurs after filing for bankruptcy.

 

Student loans are generally in the category of not dischargeable...but I have seen some folks claim to have had some student loans discharged. An attorney will take the easy way out and simply include ALL debt and the bankruptcy code requires ... even though some may not be discharged.

 

It is a waste of time and effort to pursue your attoney as you will have to prove damages. Use your energy to rebuild your credit profile and look ahead.

Message 3 of 9
Anonymous
Not applicable

Re: Possible Ineffective Bankruptcy Counsel?

I am a BK attorney who has filed many bankruptcy cases and I saw your post and couldn't not respond because frankly there's some serious misinformation and misunderstanding going on.

 

Some points to be aware of that may help clarify :

 

1.  You are required by law to list all debts you have in a bankruptcy case, regardless of whether they are dischargeable or not.  You sign your bankruptcy schedules under penalfty of perjury stating that you have listed all of your outstanding debts as of the date the case was filed.  This includes student loans.  There is no "including" or not including.  ALL DEBTS are impacted by a bankruptcy filing.  Failure to list a debt is perjury.  Just because you have a debt and you filed bankruptcy and list it in your bankruptcy schedules, it does not mean it is discharged (like your student loans).  As for the accelleration clause the lender is now enforcing, that's their perogative and there was no way to avoid it if they are insisting on enforcing it.  As someone who has handled nearly 1200 bankruptcy cases, I can promise you not every student loan company will do that, although it is by no means unheard of.   Your attorney could not have "not included" certain obligations.  Even when clients fail to list creditors in the BK, the creditors always find out because they periodically check credit and will see the BK.  As soon as they see it, the account will be closed and they will treat it as it should be treated - an account discharged in bankruptcy.  In fact, even if you fail to list a particular creditor, as long as your chapter 7 is a " no asset" case (one where nothing was sold to pay creditors), then the debt is still discharged.

 

2.  Paying off certain creditors in the period immediately leading up to your bankruptcy case is a preferential payment and the payment can be recovered by the bankruptcy trustee in many circumstances.  For example, if you have one credit card with a balance of $5,000.00 and you decide to pay it off in the 90 days preceding your case, then the bankruptcy trustee can go to that creditor and force them to give back that money and share it with all creditors equally.  When you have small balance cards and you pay them off prior to filing, it may not be worth it to the Trustee to go after those preferential payments, but your attorney could not advise you to make any preferential payments.  It would have been very poor legal advice, and possibly malpractice if the attorney had told you to pay off certain unsecured creditors right before filing.

 

Nothing you have described is anything the attorney "did wrong."  It's all things that had to happen when you filed bankruptcy.  I hope this helps explain the reasons behind what you're seeing as "ineffective."  If you have other questions, I'll try to check back and answer them for you.

Message 4 of 9

Re: Possible Ineffective Bankruptcy Counsel?

Regarding the "instructing me to include all my accounts in BK" - I think my point is getting missed here.  I'm not saying I should have left out accounts.  I'm saying that I should have closed $0 balance accounts prior to filing since then they wouldn't be active accounts and wouldn't be included in the BK.  Obviously a credit card I had closed 10 years ago isn't included in my BK, and on that same token, accounts that I had with a $0 balance I should have been advised to close first and then file for BK since it seems that they then wouldn't be included in the BK since they were closed already (and I'm pretty sure a closed account or even a $0 account doesn't represent a debt with a creditor since I don't actually owe anything).

 

Regarding the student loans - I'm not saying that I shouldn't have included them, or that the acceleration clause wouldn't have occurred anyway - what I'm saying is it would have been nice if the person I'm hiring for legal advice and to help me through this process (aka my attorney) would have told me this could have occurred so I wouldn't be blindsided by it months after the whole process was complete.  It seems like, from what I'm reading, this acceleration clause happens often enough and is known about often enough by those "in the know" that it should have been something my attorney would have brought to my attention (especially since we spent a great deal of time discussing my student loans, and even after the fact he couldn't give me a specific answer on whether they were discharged or not - this is something I had to research and discover that an adversarial proceeding is required).  Further, while the acceleration clause might have occurred anyway, at the very least knowing about it before filing the BK would have given me the time to call my student loan providers and perhaps come up with some way to convince them to not proceed in this manner.  Obviously, after the fact it's impossible to prevent.

 

Anyway, I'm pretty positive at this point that there's not much I can do regarding my attorney, but I just have to say that I think his assistance in this whole matter was pretty poor considering he does this for a living.

Message 5 of 9
sccredit
Valued Contributor

Re: Possible Ineffective Bankruptcy Counsel?


@ColonelSandurz wrote:

Regarding the "instructing me to include all my accounts in BK" - I think my point is getting missed here.  I'm not saying I should have left out accounts.  I'm saying that I should have closed $0 balance accounts prior to filing since then they wouldn't be active accounts and wouldn't be included in the BK.  Obviously a credit card I had closed 10 years ago isn't included in my BK, and on that same token, accounts that I had with a $0 balance I should have been advised to close first and then file for BK since it seems that they then wouldn't be included in the BK since they were closed already (and I'm pretty sure a closed account or even a $0 account doesn't represent a debt with a creditor since I don't actually owe anything).

 

Regarding the student loans - I'm not saying that I shouldn't have included them, or that the acceleration clause wouldn't have occurred anyway - what I'm saying is it would have been nice if the person I'm hiring for legal advice and to help me through this process (aka my attorney) would have told me this could have occurred so I wouldn't be blindsided by it months after the whole process was complete.  It seems like, from what I'm reading, this acceleration clause happens often enough and is known about often enough by those "in the know" that it should have been something my attorney would have brought to my attention (especially since we spent a great deal of time discussing my student loans, and even after the fact he couldn't give me a specific answer on whether they were discharged or not - this is something I had to research and discover that an adversarial proceeding is required).  Further, while the acceleration clause might have occurred anyway, at the very least knowing about it before filing the BK would have given me the time to call my student loan providers and perhaps come up with some way to convince them to not proceed in this manner.  Obviously, after the fact it's impossible to prevent.

 

Anyway, I'm pretty positive at this point that there's not much I can do regarding my attorney, but I just have to say that I think his assistance in this whole matter was pretty poor considering he does this for a living.


You would have had to include any and all open accounts per BK code.  Trying to close them right before filing would not have done you any good.  

Message 6 of 9

Re: Possible Ineffective Bankruptcy Counsel?

How come though?  You just said I'd have to include all open accounts, but if I closed accounts that had $0 balances, then wouldn't they not appear as "included in bankrputcy" (IIB) on my credit reports?

Message 7 of 9
Anonymous
Not applicable

Re: Possible Ineffective Bankruptcy Counsel?

I can understand your frustrations.  The attorney should have been easily able to explain about whether your student loans would be discharged, that's not a complex question where the answer would be vauge.  As for the warning about the possibility ot the lender enforcing the accelleration clause, if it helps, keep in mind it wouldn't have changed anything - the lender's policy would not have been altered whether you talked to a rep about filing BK prior to the case.  it's not standard practice for attorneys to go over every possible scenario and way that a particular lender could react to the bankruptcy filing, but I can understand your frustration about the possiblity of the student loan being in default/accellerated not being discussed, especially if you spoke about student loans in depth.

 

As for inclusion of $0 accounts, keep in mind it would cause preference problems and be poor advice for you to go pay off accounts right before filing to try to ensure they had $0 balances and were closed.  Nothing in the BK code or in developed case law requires listing a creditor to whom you have an open credit account but no balance.  That being said, I know many intelligent bankruptcy attorneys who have differing views on whether an open account with a $0 balance should be listed in the schedules.  I personally do not normally include accounts with a $0 balance in the BK scheds.  

 

Again though, I seriously doubt the $0 balance accounts being reported as IIB are causing any significant difference to your post-bankruptcy credit score than if they had simply been closed prior to the BK.  If you had closed all $0 accounts before filing, I do not belive your current score would be tangibly improved.

Message 8 of 9
0REDSOX7
Valued Contributor

Re: Possible Ineffective Bankruptcy Counsel?

FWIW, I had several open accounts with a zero balance that I listed with GECRB (now Synchrony Bank). I also had other accounts with them that had a balance that was technically included in my BK.

Those that had a balance were closed and updated to show IIB and the others were simply closed at creditors request.

I guess it depends on the lender, but I did also close my Credit One two months prior to filing (it had a 75 balance at the time) only because I did not want to burn them and needed them for my rebuild.
BK Discharge 2/11/14

Currently in the garden.
Message 9 of 9
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