Debtor Can Utilize Non-Filing Spouse's Exemptions - LBR Order

On December 16, 2010, Judge Linda Riegle in the case of Ana J. Fox (10-19096) held that a married debtor may utilize the non-filing spouse's exemption claim.  It is my understanding that another Judge in our district holds a contrary view. 

Of course, what would occur if one spouse chose not to claim the exemption and the non filing spouse wanted to claim the exemption?  This exact issue did arise in one of my cases (prior to this decision).  Spouse A did not want to claim a homestead exemption and the non filing Spouse (who was getting a divorce from Spouse A) wanted to assert the claim.  Although it appeared that the exemption claim was not valid, a settlement was reached which resulted in some funds going to the non filing spouse and the remainder to the bankruptcy estate.

Unilateral Withdrawal by a Debtor's Attorney Could be Costly to the Debtor and Counsel

Bankruptcy Judge Eileen Howell, in In re Barron, 2010 WL 5168889 (Bankr. D. Ariz, December 14, 2010) recently entered a decision on a reaffirmation agreement issue.  The decision is very important on the jurisdictional issue for the Court (i.e. must the Court hold a hearing if the Debtor is represented by counsel but counsel fails to sign off on the reaffirmation agreement? – the answer is “no jurisdiction”).  However, as the Debtor did everything required of them, the Court found that 521(d) is inapplicable. 

My focus is on the Court’s statement that “[c]ounsel simply cannot unilaterally withdraw from the reaffirmation process and abandon the client even if counsel and their clients disagree").  In the Barron case, the Debtor’s counsel did not formally withdraw but instead chose not to represent the debtor.  This type of action by Debtor’s counsel is prevalent throughout the Country. 

All Debtors’ counsel should be fully aware that their action or lack of action could be costly to not only their client but their own pocketbook.  The Nevada Courts have the local rules, case law as well as our ethical rules to support the same conclusion that your the attorney until you obtain an order withdrawing from the case.   

Attorney of Record – Local Rule 2014 – Enforcement Issues

Bankruptcy attorneys, specifically, debtor’s attorneys (not all but some), take the position that if their client does not pay them, then they don’t have to work for free.  Moreover, they take the position that a Rule 2016 disclosure is a safe harbor position.  I strongly disagree with this position as it misses the major point.

Attorneys are ethically prohibited from doing nothing because they were not paid.  It is malpractice not to represent your Client.  The Bankruptcy Court has created a band aid approach (I have to admit that I assisted in this approach but don’t totally agree with the end result) by utilizing a pro-bono program to help those individuals who were dumped by their own attorneys.  It is a great program and the employees do a great job, but in my humble opinion, it should be the attorney’s job.  This approach in my opinion helps the Debtors but does not help the system.  In fact, it gives more credence to the attorneys who dump their clients when they don’t get paid. 

So, what should a Debtor’s attorney do who is not getting paid?   The answer is clear as the water in the gulf before the BP oil spill.  Withdraw from the case.  Let me repeat that, withdraw.  This procedure is simple, cost effective and protects an attorney from malpractice claims.  The key though is to withdraw prior to an issue arising.  Once an issue arises, the Court will likely not permit you to withdraw as it will create a negative impact on your Client.  Some say this is not cost effective for a Debtor’s attorney.  I say, who cares… as it part of job as an ethical attorney.  If you don’t want to do your job ethically then you have to face the consequences.  It’s your choice.    

Here is what you need to do and it is no big secret.  In a Chapter 7 case, you file it, attend the meeting of creditors, and resolve all issues which you were paid for and then file a motion to withdraw.  You will have to look at the ethical rules, but if your contract provides for services ABC and you perform ABC, then the Court should have no reason not to grant the motion.  This will get you off the ECF service list and will save you potential headaches down the road.  Just make sure you file the motion to withdraw prior to any issue arising and advise your clients well in advance about your obligations and your intent to withdraw after you perform your contracted services. 

If you think this is silly, then look at our local rule (emphasis added):

LR 2014. ATTORNEYS OF RECORD.

(a)   Appearances. An attorney who appears in a case on behalf of a party is the attorney of record for the party for any and all purposes except adversary proceedings until an order is entered permitting the withdrawal of the attorney or the case is closed or dismissed.

Finally, case law supports this position.  Check out In re Evans, 2007 WL 7138338 (Bankr. N.D. GA 2007).  This case spells out and lists the obligations of a Debtor’s attorney in a Chapter 13 case….notice….you are the attorney until you withdraw (it is like the 10 commandments but in this decision there are 17)

The Court stated:  “unless and until the Court allows the attorney to withdraw as Debtor's counsel, the attorney shall perform any and all services necessary and appropriate for the representation of Debtor in, or relating to, the case”

THE ATTORNEY SHALL:

1. Advise the Debtor of the requirement to attend the meeting of creditors, and notify or remind Debtor of the date, time and place of the meeting, in such detail as is helpful or necessary to Debtor's appearance.

2. Inform Debtor that Debtor must be punctual and, in the case of a joint filing, that both spouses must appear at the same meeting.

3. Provide competent legal representation for Debtor at the meeting of creditors, appear in time for check-in and the actual examination and, unless excused by Trustee, for the confirmation hearing.

4. If an attorney not employed by Debtor's attorney's law firm (a “contract” attorney) will be attending Debtor's 341 meeting or any court hearing, personally explain to Debtor in advance the role and identity of the contract attorney, obtain Debtor's written permission for the contract attorney to represent Debtor and provide the contract attorney with the file in sufficient time to review and discuss it with Debtor prior to such representation.

5. Make all reasonable efforts for the individual attorney who met with Debtor to attend the § 341 meeting or any other court hearing. However, if that attorney is unavailable then an attorney will be present on behalf of the Debtor with knowledge of Debtor's case and authority to make any modifications to Debtor's plan deemed necessary.

6. Timely submit to Trustee properly documented proof of income for each Debtor, including business reports for self-employed debtors, and all required pay advises and tax returns or transcripts.

7. Timely respond to objections to plan confirmation, and where necessary, prepare, file and serve amended Schedules or an amended plan.

8. Timely prepare, file, and serve any necessary annual financial statements, amended statements and Schedules, and any change of address, in accordance with information provided by each Debtor.

9. Monitor all incoming case information (including, but not limited to, Order Confirming Plan, Notice of Intent to Pay Claims, and 6-month status reports) for accuracy and completeness. Contact promptly Trustee or Debtor regarding any discrepancies.

10. Promptly respond to Debtor's questions through the term of the plan.

11. Timely prepare, file and serve necessary modifications to the plan after confirmation, including modifications to suspend, lower, or increase plan payments.

12. Prepare, file and serve necessary motions to buy or sell property and to incur debt.

13. On or before 60 days after the general bar date, certify the attorney has reviewed claims with Debtor, prepared, filed and served objections to improper or invalid claims and filed claims within 30 days after the bar date for creditors who fail to file claims when such failure will adversely affect Debtor's case or its successful completion and discharge or such failure will adversely affect Debtor after case completion and discharge.

14. Timely confer with Debtor and respond to any motion to dismiss the case, such as for payment default, or unfeasibility, and to motions to increase the percentage payment to unsecured creditors.

15. Timely confer with Debtor and respond to motions for relief from stay,

16. Timely prepare, file and serve appropriate motions to avoid liens.

17. Provide any other legal services necessary for the administration of the case.

You should not be surprised that in 2011, some attorney will be faced with this issue...so be forewarned and cover yourself, disclose, disclose, disclose and once done, withdraw.

You Only Have What You Disclose - Judicial Estoppel

The Ninth Circuit continues to apply judicial estoppel to claims not asserted in schedules. In a recent slip opinion, the Ninth Circuit upheld the district court’s decision to grant a motion for summary judgment when the Debtor (in this case, the ex-husband) failed to disclose in his schedules that he had a cause of action against his ex-wife. His failure to list the claim precluded him from prosecuting the claim. The Court cited to the general proposition that when a claim is “not raised in a reorganization plan or otherwise mentioned in the debtor's schedules or disclosure statements,” judicial estoppel prevents that party from asserting that claim. Hamilton v. State Farm Fire & Casualty Co., 270 F.3d 778, 783 (9th Cir.2001). See Mergia v. Adams, Slip Opinion 2010 WL 4877815 (9th Cir. 2010).