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The Human Side of Bankruptcy

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First and foremost, bankruptcy is about people—people who have problems. They look to their lawyers and to the court for a solution to those problems. More than 95 percent of all bankruptcy cases involve consumers, not businesses or corporations. Generally, these people have a multitude of problems, which may include a reduction in salary, unemployment, illness, accident, additional obligations to take care of a new child or an aging parent, domestic difficulties and others.

As with any system, there are some who take unfair advantage of it, but those incidents are few and far between. Most people struggle and do their best to resolve their problems, but everything they do seems to turn out wrong.

Bankruptcy is emotionally devastating. In order to file bankruptcy, people have to acknowledge that they have failed in their financial lives. They are crushed mentally. They need the fresh start that bankruptcy provides to once again become producing, contributing members of society.

Hopefully, as they go through the bankruptcy process, they will learn the lessons of thrift and money management that their parents did not teach them. Those lessons were quickly learned by those who lived through the Great Depression of the 1930s, but current generations have not been taught those lessons.1

The Judge's Role

With our ever-increasing dockets, we judges have a tendency to overlook the 95 percent of our cases that involve consumers. Many times dockets become a "numbers game" to see how many cases can be pushed through the system in the shortest amount of time. I heard one judge brag that he had confirmed 50 chapter 13 cases in "64 seconds." Certainly those people got their plans confirmed, but were they helped along the road to financial and emotional recovery by a judge they never saw? I don't think so.

Judges have an obligation to give time and attention to this part of their dockets. People who are having a chapter 13 plan confirmed need to be told that they are doing something good to pay their creditors as much as they possibly can. Most of them have been fighting financial difficulties for several years and have been constantly bombarded with negative comments from understandably angry creditors when they could not pay their bills. These debtors need a judge to tell them that they are doing the honorable thing by trying to pay their bills. They need a judge to encourage them to keep going when things get tough. These words of encouragement may result in more completed chapter 13 plans. Certainly that has been one factor causing the completion percentage of chapter 13 plans in our area to far exceed national averages.

Almost without exception, filing a chapter 7 case represents financial and emotional failure to the debtors. Their financial difficulties have plagued them for years and they have been under tremendous emotional strain. Bankruptcy is a scary and mysterious process to them. They need to attend a discharge hearing to put an end emotionally to the process. They need to know where they can go to get help in budgeting and money management and they need to know the true meaning of their fresh start.

The Attorney's Role2

Attorneys, whether you file an occasional bankruptcy case or do a volume bankruptcy practice, who are your most important clients? The answer is simple. It is the clients who are in your office at that very moment. They have done you the high honor of asking you to help them with problems that have been a worry, concern and emotional strain to them for months and perhaps years. You have the knowledge, skills and tools with which to help them rebuild their lives. You should treat them with the courtesy, concern and respect that they deserve and that this high honor commands.

First and foremost, listen. It is therapeutic for them to talk about their problems and you will learn about their problems from listening to them and asking polite, probing questions. Do not attempt to solve their problems until you know all the facts.

Carefully discuss the alternatives available to them, both in and out of court. Tell them the good and bad aspects of every alternative. Let them make the decision. These are their lives—not yours.

One of the most difficult problems faced by every bankruptcy attorney is helping the debtors to prepare a realistic, post-bankruptcy budget, but this is probably the most important thing you will do to help them. Their financial and emotional rehabilitation starts with this. Most people have been doing without things they need in order to try to satisfy creditor demands. For this reason, their initial budget estimates will typically be too low. Through the budgeting process, clients soon learn what items they must surrender because they cannot afford them, and what sacrifices they must make in order to keep items that they think are essential. The budgeting process is also a major factor in determining whether the debtors can resolve their problems without court assistance, whether they can propose a reasonable chapter 13 plan, or whether they must file a chapter 7.3

There are a number of things you can do to reduce the time you have to spend with a client, yet make them realize that you consider their case very important.

  • Most clients have absolutely no idea about bankruptcy, and others have wrong ideas that they have gathered from coffee cup conversations with self-appointed "experts." Prior to your initial interview with clients, your staff should invite them to see a video that describes out-of-court alternatives, the bankruptcy process, the good and bad points of chapters 7 and 13, discusses the exemptions available in your state, and carefully reviews grounds for objections to the discharge, and objections to the dischargeability of a debt.
  • At the beginning of the initial interview, be sure and ask for any questions they have about the video and try to make sure that they understood it.
  • At the conclusion of the initial interview, give them a pamphlet that basically repeats what the video said. This is the old school teaching approach of "you tell them what you are going to tell them, you tell them, and then you tell them what you told them." They received a lot of information at your office on that first visit. The pamphlet gives them something to refresh their memory and to answer their questions.
  • If they decide to file for bankruptcy, introduce them to the member of your staff who will help them prepare their schedules. Give them a sheet of instructions on the information that they need to bring to you to help prepare the schedules. If you give them the schedules and tell them to fill them out and bring them back, they will wonder why they need you.
  • Suggest to them that if you are unavailable at the time they call, this staff member would be happy to talk with them. Many times debtors have routine questions that the staff member can answer. If the question is more complicated, the staff member can relay the question to you so that you can be thinking about the answer or additional information that you need when you return the call.

Typically, the information that the debtors bring back for the preparation of their schedules is only about a third of the information that you need. Your staff member can prepare a draft of the schedules. Hopefully you have trained that staff member to be skilled in carefully reviewing that draft with the debtors, to gather the additional needed information, and to highlight any problem areas for your consideration. When the debtors come in to sign their schedules, they should be given time in a quiet, private room to thoroughly read them and make sure that they are complete and accurate. Even after that, you need to go over the schedules thoroughly with your clients prior to signing. The time spent making sure the schedules are accurate will save you much more time at a later date.

Throughout the process, you told your clients about the meeting of creditors, but they do not focus on it until it arrives. As soon as the date, time and place are set, have your office notify your clients. This reinforces the notice sent by the clerk's office. A few days in advance, your office should contact the clients and make arrangements for them to meet you to review what might transpire at that meeting. It is best if they meet you at the office and you go to the courthouse with them. You can use this time to explain the process and to tell them what to expect. If you have other cases that day, make sure that they meet you at the courthouse prior to their meeting so you have time to visit with them. It is a good practice to allow them to sit through two or three meetings just prior to theirs, so they see what is happening and will not be afraid when their meeting is conducted.

Throughout the balance of the case, you and your staff need to respond promptly and efficiently to any questions or problems that arise. If the court in your area conducts discharge hearings, attend them with your clients. Much like a graduation ceremony, the discharge hearing closes the book on one portion of their life and allows them to move forward with confidence to a better tomorrow.

Once their discharge is granted, you should send your clients a letter thanking them for hiring you. Tell them that you hope you and your staff helped them to get through this difficult time as painlessly as possible and wish them well in all their future endeavors.4 You will never regret "going the extra mile" with your clients and they will always remember the good service they received from you.

Representing debtors in consumer bankruptcy cases requires the utmost in creative and imaginative lawyering. Most debtors have several types of very difficult problems. They are under tremendous pressure and emotional strain. No funds are available and there is no source of funding. Debtors do not know how to make good financial decisions. A lawyer must enter this storm and guide them toward decisions that will provide smooth sailing for their financial future. It is a difficult, and sometimes aggravating, law practice but it is one in which a lawyer will find real satisfaction in helping people when they really need it.


1 My father started his business life during the Great Depression. When called upon to clean out a house where he had lived for 50 years, I saw vividly the results of the lessons he learned of saving and not throwing anything away because it might be needed another day. My father managed a lumber and mill business. He told how they struggled each week so that everyone who worked there would have grocery money on Friday. My mother stated that during the Depression, she had people at the front door every day offering to work for food. My children do not understand those lessons, and my grandchildren would find them unbelievable. Return to article

2 Lest you think that the following comments are made by someone from an ivory tower, I respectfully point out that I practiced law for 29 years before I had the privilege of becoming a U.S. bankruptcy judge. A large portion of my practice was spent representing debtors and creditors in all types of bankruptcy cases. Return to article

3 The budgeting process is as important in a chapter 7 case as it is in a chapter 13. The chapter 7 should be a solution to the debtor's problems, not just temporary relief. Chapter 7 debtors must make some hard choices about what items they can really afford and must examine their lifestyle carefully. Their attorney must guide them toward a realistic budget so they can move forward in their lives without financial pressures. Return to article

4 Some lawyers ask the debtors to complete a brief questionnaire to determine what the clients liked and did not like about the service they received from the lawyer and ways that it might be improved. Again, this makes your clients realize you value their business and gives you information on how you might do things better. Return to article

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Monday, February 1, 1999

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