In a perfect world, a new bankruptcy client will tell his lawyer the truth about all of his assets, debts, income, pre-petition transfers and prior bankruptcies already filed. That, of course, almost never happens. Therefore, here are 10 steps the bankruptcy practitioner can take to protect himself and the client from the potential pitfalls and perils of filing a bankruptcy petition.
Step 1: The client interview form: The perfect bankruptcy petition begins with the attorney’s extensive pre-bankruptcy consultation with the prospective client. This can only occur through the use of a comprehensive list of questions targeted to ferret out potential problems. Notes taken at the initial consultation often come in handy when preparing and reviewing the bankruptcy petition.
Step 2: Identification documents: Before proceeding to the next step, the lawyer’s staff should verify the client’s identification and Social Security numbers by visually inspecting the client’s valid driver’s license, state-issued identification card or passport, and Social Security card.
Step 3: The pre-petition credit report: Next, staff should obtain a combined credit report for the prospective client. A combined credit report will include debts reported by the big three credit reporting agencies and is more comprehensive than whatever the client can provide.
Step 4: The bankruptcy PACER docket: It’s time for a paralegal to log on to PACER, the federal courts’ online filing system, and review the national bankruptcy PACER docket for potential prior cases filed by the client. People move around. The client sitting in the office may have filed a bankruptcy in a different state, so merely reviewing local bankruptcy dockets on PACER won’t reveal the prior case.
Step 5: The comprehensive work booklet: Along with the combined credit report, staff should give the client a comprehensive work booklet that tracks the bankruptcy petition form. The client should complete this in his own handwriting. Putting the client to work provides the soon-to-be-debtor with a sense of ownership and responsibility in creating an accurate bankruptcy petition.
Step 6: The pre-petition asset search: A comprehensive asset search not only reveals assets currently titled in the debtor’s name but also assets that have been transferred out of the debtor’s name. Westlaw and Lexis both offer this search capability, albeit for a fee, of course.
Step 7: Ad valorem property taxes: Researching real property taxes online comes next. Most counties in Texas have websites the lawyer’s staff can access at no cost. These are useful not only for conducting a secondary asset search for real properties but also for discovering any outstanding real property taxes.
Step 8: The Internal Revenue Service: Staff can download the I.R.S. Power of Attorney Form No. 2848 at www.IRS.gov or contact the nationwide I.R.S. hotline at (866) 860-4259. They should fill out the form and request an account transcript from the I.R.S.
The transcript will reveal the various tax years in question, the filing status of the debtor(s), the amount of taxes due, the penalties assessed, the date the return was due or filed (whichever is later) and whether it was filed by the debtor or the I.R.S., any pending I.R.S. liens, offers in compromise or bankruptcy filings.
Step 9: The inter-office traps: Establish inter-office traps to catch potential problems. Preferably, counsel should meet with the prospective client at the initial interview. Later, one of the firm’s paralegal staff should re-interview the client during the documentation gathering and preparation phase to determine whether the client revealed everything at the initial interview.
Ultimately, however, counsel should conduct the final review of the petition and all supporting documentation at the time of signing and filing the petition. The lawyer should re-interview the client on key questions designed to root out any potential undisclosed assets.
I always find it helpful at this juncture to remind the client of the criminal penalties he can face if he fails to disclose everything required pursuant to Title 18 of the U.S. Code.
Step 10: The client responsibility letter: Counsel should provide the client with a thorough responsibility letter. A clear and precise letter explained, then handed to the client by his counsel at the time of signing the bankruptcy petition, adds an additional layer of written notice to the client of his duties and responsibilities under the U.S. Bankruptcy Code.
The Bankruptcy Code is complex, and the letter can’t cover everything. However, to the extent the lawyer advises the client of his obligations under 11 U.S.C. §521 and of the consequences for failure to meet them pursuant to Title 18 of the U.S. Bankruptcy Code, the attorney has covered most of the bases.