Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)
Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them
Executive Summary Unlike other legal matters, bankruptcy is a serious legal process that requires competent counsel. For the process to be a success, the debtor must cooperate with counsel to the fullest. A good bankruptcy attorney will carefully review the debtor’s financial information to spot problems. However, whether an attorney can fully assess those issues will ultimately depend on the debtor. Unfortunately, debtors often prove to be their own worst enemy.
Mistake 1 Not Providing Information on a Timely Basis The decision to file for bankruptcy is rarely made hastily. Usually a debtor has exhausted other avenues to deal with oppressive debt before even contemplating bankruptcy. It can be an emotional and heart-wrenching process. Meeting with and retaining counsel are among the first steps in moving through that process. When counsel is retained, debtors still need to diligently work with their attorney in gathering crucial financial documents and information to properly prepare the petition and schedules that will be filed in the U.S. Bankruptcy Court. Simply retaining counsel does not relieve the debtor from adhering to the requirements of the Bankruptcy Code to prepare and file a complete and truthful petition. The time frame for the debtor to obtain that “fresh start” will ultimately be determined by the debtor.
Action Step Physicians should retain counsel and work diligently to gather documents and financial information so that the bankruptcy process can begin.
Mistake 2 Not Disclosing All Financial Information. Bankruptcy law is not practiced like criminal law. Since criminal defendants have the right not to incriminate themselves, a good criminal lawyer will usually advise the criminal defendant to tell him or her only the information the lawyer needs to know. Bankruptcy is different. Bankruptcy counsel needs to know everything. When asked how much money the debtor has, the debtor must be honest. Saying “a few hundred, I guess” when the reality is that there are thousands of dollars in an account will not suffice. When asked how credit cards were used, the debtor must give as much accurate information as possible. Bankruptcy counsel cannot effectively represent the debtor unless the attorney knows everything about the debtor’s financial position. What the attorney does not know will likely end up hurting the debtor, not the attorney.
Action Step Physicians should cooperate with counsel and disclose all financial information.
Mistake 3 Misunderstanding Counsel’s Role in the Bankruptcy Competent bankruptcy attorneys will, within the best of their abilities, prepare an accurate bankruptcy petition using the information obtained by the debtor. Sometimes the debtor forgets to give certain information to the attorney. Other times, the debtor discloses the information, but because this is ultimately a human system, the information does not make its way to the documents that will be filed in court. No debtor can claim that a petition is inaccurate because his or her attorney did not prepare it correctly. The petition and related documents are signed under penalty of perjury. Courts have rejected the “I thought my attorney put that information in” defense and have denied a discharge to debtors who have not read their petitions prior to filing.
Action Step Physicians should carefully review the petition and schedules, and ensure that the documents are accurate and complete. The moment the debtor discovers that there is an error in the petition, even after it has been filed, counsel must be apprised immediately.
Mistake 4 Not Hiring an Expert As no physician can treat every ailment; no attorney can effectively represent a client on every legal matter. Bankruptcy is a specialized area of the law, with its own rules, courts, and judges. Hiring a friend or golf buddy can be problematic if issues arise that the attorney is not experienced enough to handle appropriately. While many office supply stores carry blank bankruptcy forms, the temptation to save a few bucks can be tempered by legal complications and fees that will arise later. In addition, the political climate has swayed against what are now referred to as the “easy bankruptcies” of the past. Debtors should have competent counsel to guide them through an increasingly difficult legal process.
Action Step Physicians should search for a qualified and experienced bankruptcy attorney, feeling free to interview more than one.
Mistake 5 Using Credit to Pay Attorney’s Fees The Bankruptcy Code prohibits certain debts from discharge. Some debts are nondischargeable if they are incurred within a certain period of time prior to filing. Other debts are nondischargeable if they are incurred through fraud. Paying counsel’s fees with either a cash advance or a credit line is an invitation to trouble. If a debtor uses credit knowing it will never be paid back, it can be considered fraud and result in the debt being declared nondischargeable as well as higher costs and attorney’s fees. In some cases, it can even result in a discharge being denied or other legal problems.
Action Step Debtors must pay attorney’s fees with their own money.
Mistake 6 Being Obstinate about Monthly Expenses Simply stated, debtors filing bankruptcy are living beyond their means. There can be a plethora of reasons a debtor has been led to this point (such as divorce or health problems). The Bankruptcy Code allows debtors to exempt from their income necessary and reasonable monthly expenses. This includes food, transportation, housing, and other similar expenses. It does not include contributions to a Christmas club, a vacation fund, or an IRA. What a debtor can claim as a necessary monthly expense varies from case to case based on the individual needs of the debtor. Competent counsel will be able to spot problematic expenses and bring them to the debtor’s attention. When these issues are raised, debtors should listen to their counsel and not decry why they cannot spend their income the way they see fit. Debtors in bankruptcy do not have that option. Being obstinate about expenses when counsel advises that they are not necessary can result in legal complications in the bankruptcy, including a denial of discharge, a conversion from a Chapter 7 to a Chapter 13, or a higher monthly payment under a Chapter 13 plan.
Action Step Debtors need to listen to counsel, and if so advised, be prepared to adjust how they spend their money.
Mistake 7 Failing to Obtain a Recent Copy of Their Credit Report The credit report lists all outstanding obligations to creditors, including obligations that a debtor may have forgotten. If the debtor’s bankruptcy petition lists all creditors that are noted on the credit report, the bankruptcy information related to those debts will eventually be noted on the credit report. This is important because, in some cases, when a debt is not listed on the petition, it may not be considered discharged. This can prove problematic years after the discharge is received when the debtor is applying for a mortgage or an automobile loan and an outstanding debt still appears on the credit report.
Action Step Debtors should obtain their credit report to assist their counsel. They should also obtain their report six months after receiving their discharge to ensure that the information in the report is accurate.
Mistake 8 Misrepresenting How Debtor Got into Financial Trouble A good bankruptcy attorney will ask at the earliest possible time why someone is seeking bankruptcy protection. There are many reasons people end up in bankruptcy: a lost job, a health problem, a divorce. All of these issues contribute to a diminution in income or an increase in expenses (or both) that ultimately interfere with the ability to make ends meet. There are also other factors that can contribute to a bankruptcy: substance abuse, gambling, overspending, and the like. Debtors should not be concerned that their attorney is going to pass judgment on how they arrived at the decision or the need to file for bankruptcy. Debtors should not be ashamed to tell counsel the truth about their personal problems that contributed to the filing. Knowing that information will enable counsel to provide the best advice and counsel.
Action Step Debtors should tell their attorney everything, including how they got into financial distress, even if the reason is difficult to discuss with a stranger.
Mistake 9 Not Disclosing Lawsuits and Potential Lawsuits One of the biggest mistakes debtors make in dealing with their lawyers is not telling them about lawsuits they have, or may have. Lawsuits, or alternatively, the claims a debtor has against a particular person or entity, must be disclosed on the bankruptcy petition. The Bankruptcy Code determines whether the proceeds from a lawsuit can be used to pay creditors. If a debtor does not disclose the existence of the claim, the debtor loses it. Physicians should remember this rule: list it or lose it.
Action Step List it or lose it. Physicians should tell bankruptcy counsel about all potential claims. Competent bankruptcy counsel can assist the debtor in determining whether bankruptcy is the best option in light of the existence of a claim.
Mistake 10 Not Disclosing the Embarrassing Things Counsel Does Not Specifically Question The important thing to remember in the bankruptcy process, and the most important thing to remember about working with counsel, is that before filing the petition, the debtor has all the control. If an issue is discovered prior to the filing, it can be dealt with appropriately. This might include not filing bankruptcy, delaying the filing, or perhaps seeking bankruptcy under a different chapter. The time for issues and problems to be disclosed is before the filing, when the debtor has all the control. But once the petition is filed, the debtor effectively relinquishes control to the Bankruptcy Court, from whom the debtor is seeking protection. Issues that arise after the filing can have legal consequences that may be unavoidable because there was no planning or disclosure prior to the filing of the petition. Any information about assets, debt and credit, and how debts were incurred should be disclosed, especially if there are concerns about fraud.
Action Step When in doubt, physicians should disclose everything to their attorney before filing the petition.
The decision to seek bankruptcy is a difficult one, and the process is only made more difficult when physician-debtors do not heed the advice and counsel of their attorneys. This process can be ameliorated if physician debtors heed the recommendations in this section, as well as that of their attorneys.
Written by: William J. McLeod, Esq.
Peer reviewed by: Robert S. Messinger, Esq.