ABI Best Practices

This report has been prepared by Fellows of the American College of Bankruptcy (the "College"). The College and its Fellows do not warrant or represent the accuracy or completeness of any of the information, or any of the recommendations, contained in this report. The recipient of this report, by receipt, acknowledges the foregoing.

Best Practices for Consumer Bankruptcy Cases
(including Commentary)

Retainer Agreement

SEQ CHAPTER \h \r 1The attorney should provide the debtor with a plain-English written retainer agreement in every case, setting forth the duties and obligations of the attorney and the client, no later than the time when the initial fee payment is made or, if the petition is filed before payment of a fee, prior to the petition being filed. The agreement should clearly state the attorney’s fees and terms of payment, as well as, in general terms, the scope of services that are covered and not covered by the fees stated. Ordinarily, the agreement should provide, at a minimum, that the attorney will prepare the petition, statements and schedules, as well as the plan in a chapter 13 case, that the attorney will provide representation at the section 341(a) meeting, and that the attorney will provide advice and counseling throughout the predictable events in the case. In addition, the agreement may provide for other services that will be necessary in the particular case, and should describe an hourly rate or other method of payment for unanticipated services that may be necessary.

Commentary

Especially in cases of consumer debtors, who are inexperienced in dealing with attorneys and legal matters, it is important to clearly spell out the services the attorney will provide, the fees for the services, and the debtor’s responsibilities. An attorney should not attempt to “unbundle” the basic services in a bankruptcy case, for example, by entering into an agreement to prepare the initial papers and do nothing more, because almost all consumer debtors are incapable of adequately representing themselves throughout the remainder of the case. There may be a variety of ways for attorneys to obtain payment of their fees, depending on state law, including for example the debtor’s grant of a lien on an anticipated tax refund or other property. Some courts have specified lists of duties that attorneys must agree to perform in order to qualify for a “no look” automatic approval of a specified fee. Unanticipated events, such as motions for stay relief or dischargeability complaints, can occur in any case, so the debtor should be advised if such events are not covered by the stated fee and informed of how fees for additional necessary services will be calculated.

Investigating the Facts

The debtor client is, of necessity, the primary source of information in a consumer bankruptcy case, and the client’s statement of the facts, obtained in a thorough and probing interview, should be presumed to be true absent particular circumstances that give rise to a suspicion that it is not. The debtor’s attorney should also obtain all documents reasonably available that are necessary to complete the petition, statement and schedules as fully and accurately as is reasonably possible. The debtor should be advised that all information presented to the court must be truthful and complete.

Commentary

As in almost any other kind of legal matter, the client is the primary source of an attorney’s information. See 2. James Wm. Moore et al., Moore’s Federal Practice ¶11.11[2] (3d Ed.)(“An attorney may rely on objectively reasonable representations of his or her client.”) There is no reason to believe that consumer bankruptcy debtors are any less honest than other clients, although due to lack of education or financial sophistication some may have less understanding of their legal and financial dealings. For example, debtors may have no expertise in valuing property, so that they may, quite innocently, greatly overvalue or undervalue property they own. Generally, information should be elicited from the debtor through use of detailed questions that go beyond simply the information to be included in the schedules and statements, using a written questionnaire[1] that should be reviewed carefully in an interview to ensure that the debtor understands the questions. It is generally good practice to have the debtor sign any completed questionnaire or other document recording the debtor’s responses, indicating that the responses are true and complete, in order to avoid any later misunderstanding. In virtually every case there will exist various types of documents, such as bills, collection letters, loan papers, paystubs, tax returns, public records, and the like which can provide more detail. A credit report and a check of electronic court files for prior bankruptcy cases are examples of documents that are easily obtainable at little or no cost and should be obtained in every case. If other evidence, or other statements of the debtor, appear to contradict information given by the debtor, or if the debtor’s answers seem implausible, the attorney should ask probing questions to ensure that the debtor understands the information that is being sought. If the debtor’s responses still do not comport with other known facts or the attorney’s general experience, further investigation is necessary. Ultimately, however, unless the debtor’s statements are clearly not supportable in light of other known evidence obtained through reasonable investigation, the debtor is entitled to present his or her version of the facts to the court.

SEQ CHAPTER \h \r 1

Emergency Bankruptcy Case Filings

When a bankruptcy petition must be filed very quickly to forestall imminent harm to a client, the debtor’s attorney should gather as much information as possible before filing the case. The attorney should 1) conduct as much of the normal client interview as possible, 2) make reasonable attempts to contact the attorney for the party that is taking action against the debtor, 3) check the electronic case dockets for prior bankruptcy filings by the debtor, 4) if possible, obtain a credit report on the client, and 5) obtain a prompt prebankruptcy credit counseling briefing for the client or otherwise comply with section 109(h).

Commentary

Emergency bankruptcy filings present special and difficult issues for a debtor’s counsel. By definition, the attorney cannot obtain all of the information that would ordinarily be obtained before filing and must act quickly to forestall serious harm to the debtor, such as a foreclosure sale of the debtor’s home. Nonetheless, the attorney must determine everything that is reasonably possible to assure that the filing is in the client’s best interest and that it is not an abuse of the bankruptcy system. Although the client may not have all of the information that would normally be obtained through an interview and necessary follow-up, conducting as much of the ordinary interview as possible is usually the best source of most information. Both because there may be some way to delay impending harmful action and because it may present a different version of the facts of which debtor’s counsel should be aware, a telephone call to the attorney for the creditor or other party taking action against the client is also important. However, it may not always be possible to reach that party. Obviously, if there are factual discrepancies, they should be investigated further to the extent possible. In addition, because debtors with emergency bankruptcy filings are somewhat more likely to be abusive than others, the electronic record of prior bankruptcy filings (PACER) by the debtor should be checked to verify the information provided by the client. Prior filings may also limit or eliminate the applicability of the automatic stay and possibly require prompt action in that regard. Finally, because debtors who do not come in until the last minute are more likely to be confused or disorganized, a credit report, which will list not only debts but also court proceedings, should ordinarily be obtained electronically with the cooperation of the client, who must of course authorize it.

Preparing the Schedules and Statements

An attorney preparing the schedules and statements required in a consumer bankruptcy case must set forth the required information in a way that is as clear and accurate as possible given the practical limitations on the information that can be gathered. These limitations arise from a lack of all the relevant contracts and other documents, debtors’ inability to give precise information with respect to many facts, the costs of obtaining precise information, and the general uncertainties and instabilities in debtors’ financial situations.

With respect to listing liabilities, the amount of a claim may be taken from a bill or collection letter received by the debtor, but with the understanding that it is not likely to be precisely accurate, and therefore can be listed as estimated or disputed or even unknown. The address for the creditor should be ascertained as accurately as possible from the papers presented by a client, or from a credit report. The consideration for credit card debts incurred for a variety of purposes may be listed as “credit card debt”, “consumer goods and services” or some similar general phrase. If debts were incurred over a period of time, the dates of the transaction may be listed as “various dates.” It is usually advisable, but not required, to list additional contacts such as attorneys or collection agents collecting the debt so that they will have notice of the bankruptcy and cease collection activities. All possible liabilities of the debtor should be listed, but if a debtor does not have actual knowledge of a liability it should be listed as disputed.

Assets should be listed as described by the debtor, but in light of the attorney’s experience. Unless there is some basis for suspicion that the debtor is not disclosing significant assets, there is no need to investigate the debtor’s assets by obtaining an appraisal or visiting the debtor’s residence. However, the values given by the debtor should be questioned by the attorney if they seem too high or too low based on the attorney’s experience or information that is readily available, such as industry valuation guides or readily accessible information about recent property sales in the debtor’s neighborhood.

The debtor’s listing of current expenditures should include projected expenses going forward, rather than past expenses, and include necessities that may have been neglected before the bankruptcy. Numbers provided by a debtor may have to be questioned in light of the attorney’s experience and it is not impermissible for an attorney to suggest that a debtor adjust either actual expenditures going forward or a debtor’s unrealistic estimate of expenses. However, the number ultimately listed should be the debtor’s best estimate with the advice of counsel. It is also not improper to list expenses that are greater than a debtor’s income, since that may be the reality. It is also appropriate to include a modest amount for miscellaneous expenses that are not itemized and a “cushion” for unexpected expenses. A detailed statement of business expenses should be attached if the debtor’s primary income is from a business with substantial expenses, but need not be attached for a debtor with minimal self employment income and few, if any, business expenses.

Commentary

Reconstructing a debtor’s financial information is at best an imprecise exercise. Debtors rarely have complete documentation of their debts and assets and often do not have a compete understanding of their finances. Because precision is not required with respect to the issues that usually arise in bankruptcy case, and because the costs of obtaining precise information would make bankruptcy unaffordable for most debtors, attorneys should be as complete and accurate as possible with the information they can readily obtain.

The precise amount owed on particular debts is almost impossible to determine with accuracy. Additional interest and charges may have accrued since the date of any statement the debtor has provided. Consumer credit agreements, even if the debtor has them, may have been amended by bill stuffers the attorney does not have. Calculating the interest and charges on credit cards and mortgages can be extremely complex and, because there have sometimes been errors in creditors’ calculations, even those cannot be relied upon. Therefore, attorneys should do their best to be accurate, but recognize and inform those reviewing the schedules that the amounts are estimates, disputed, or unknown. In most cases, the amounts of debts listed on the schedules are immaterial to the bankruptcy. Generally, in chapter 7 they are discharged, or not discharged, regardless of the amount, although the total amount of unsecured debt may occasionally be relevant under section 707(b)(2). In chapter 13, the amounts of claims to be paid is determined by the creditor’s proof of claim, and any objection thereto, not by the amount listed in the schedules. Similarly, it is impractical to list every credit card transaction, even if the attorney could obtain the records that would make that possible.

Every conceivable liability should be listed to maximize the effect of the debtor’s discharge, including for example debts of a corporation of which the debtor was a principal even if there is no reason to believe the corporate veil can be pierced. Often debtors have received mail stating that a debt has been purchased by another entity. Because debtors have no actual knowledge that confirms that this has occurred, they may dispute the entity’s claim to be a creditor.

Listing the debtor’s expenses is of necessity an exercise in estimation. Most debtors do not have clear records of what they spend and many have been juggling obligations, not paying expenses regularly, and going without necessities in the months preceding a bankruptcy. Because the primary purpose of the listing is to determine what, if anything, a debtor can afford to pay creditors in the future, it makes the most sense to list a reasonable budget going forward, taking into account the family’s needs, even if they have not always been met in the recent past. For example, eye and dental care may have been neglected before bankruptcy due to lack of funds. Similarly, home or car maintenance may have been deferred. Debtors who have not been paying such expenses may not report them as expenses initially, and there is nothing improper in an attorney suggesting they are necessary. Similarly, in light of many debtors’ lack of knowledge of their own budgets, an attorney may suggest that amounts stated by a client are unrealistically high or low. Because it is simply impossible to list every minor expense or account for the contingencies that might cause unexpected expenses, an amount should be listed for miscellaneous expenses and a “cushion”. The budget should include debt payments a debtor will have to make after bankruptcy, both to secured creditors and creditors holding nondischargeable claims, but should not include unsecured debts that will be discharged. It may be that the total expenses exceed a debtor’s income, but if that is the reality, it should be reflected. Bankruptcy does not automatically render debtors able to pay all of their reasonable expenses.

Henry J. Sommer
Chair, Consumer Practices Subcommittee

January 16, 2006

Questionnaire

Complete All Questions. If you and your spouse are not living together, and there is no possibility that your spouse will file bankruptcy along with you, you don't have to answer the questions about your spouse.

1. Name and Residence Information:

A. Your full name:

Your spouse's full name:

B. Your Social Security Number:

Your spouse's Social Security Number:

C. Your date of birth and age:

Your spouse’s date of birth and age:

D. List any other names used by you or your spouse (including maiden name), or other ways you have signed your names to papers and checks during the last eight years:

E. Current Address:

(Street)

(City) (County) (Zip Code)

F. Telephone Number:

G. List all addresses you have had in the last three years, the dates when you lived there, and the name you used while living there. If you and your spouse are filing bankruptcy together, list addresses for each for the last three years (include street, town, and zip code).

Addresses Date Moved In Date Moved Out Name Used

2. Prior Bankruptcy: Have you ever been involved before in a bankruptcy (chapter 7, 11, 12, or 13)?
YES___ NO___. If YES, bring all papers from the case(s) to our office.

What Date Case Filed Did You Get a If Yes, List If Dismissed, List

Chapter? Discharge? Date of Discharge Date and Reason

Why Dismissed

3. Other Bankruptcies: Have there been any other bankruptcies filed by someone other than you or your spouse to stop a foreclosure on your home? YES _____ NO _____. If YES, give details:

4. Occupation and Income:

A. Usual type of work:

B. Name and address of current employer:

C. Spouse’s usual type of work:

D. Name and address of spouse's current employer:

E. How long have you been at your current job?: Your spouse?

F. List all income received in the last six months by you and your spouse (do not list your spouse’s income if you are not filing bankruptcy together and you are legally separated):

(Bring a copy with you to our office of all pay stubs or other records from your employer of all pay received within the past sixty days.)

Income Received Source (Names and addresses of By Whom

(Give gross income) employers or specify social security, (Self or

welfare, unemployment, spouse)

self-employment, investments, etc.)

1 month ago:

2 months ago:

3 months ago:

4 months ago:

5 months ago:

6 months ago:

List all income received so far this year and in the last two years by you or your spouse:

Income Received Source (Names and addresses of By Whom

(Give gross income as employers or specify social security, (Self or

reported on tax returns) welfare, unemployment, spouse)

self-employment, investments, etc.)

So far this year:

Last year:

Year before last:

G. Have you or your spouse been in business by yourself or with others during the last six years?

YES ____ NO ____. If yes, give the dates, name of the business, its address, and the names of others in business with you or your spouse.

H. Are there any debts from your former business? YES ___ NO ___. If YES, list them in questions 32 and 33 and give details here:

I. (1) If you employed anyone (such as regular employees, cleaning people, gardeners, babysitters), do you still owe them wages? YES ___ NO ___. If YES, give name and address of employee, dates worked, amount owed, and work done.

(2) Has anyone given you money to purchase property or services that you were unable to provide?

YES ___ NO ___. If YES, give details:

J. Have you ever been on welfare within the past two years? YES ___ NO ___. Has anyone in your immediate family? YES _____ NO _____. If YES to either question, specify the persons, dates, amounts received, and places (if state welfare, name the state, if local welfare, name the city or county).

K. Have you ever received or been told you have received more money from the government than you were supposed to (such as social security, welfare, unemployment compensation, food stamps, etc.)?

YES _____ NO _____. If YES, give details:

L. Do you have any vacation time that is due you from your employer? YES _____ NO _____.
If YES, how much is due?

M. Do you have an IRA (including Roth or education IRA) or any other pension plan? YES ____ NO _____.
If YES, give details:

N. Have you paid or contributed any funds to a tax-exempt tuition program, or purchased any tuition credits or certificates?
YES _____ NO _____. If YES, give details:

O. Are you the beneficiary of a trust or future interest? YES _____ NO _____. If YES, give details:

P. &n