Attorneys Have Debt Problems And File Bankruptcy Too

So far this year, I’ve been contacted by three attorneys who are considering filing bankruptcy. I’ve been a bankruptcy lawyer for fifteen years now and it seems that every year at least one or two attorneys contact me for advice regarding serious debt problems.

Attorneys aren’t that different from other consumers – some have serious debt problems. Many attorneys are self-employed entrepreneurs whose cash-flow can fluctuate greatly from month-to-month just like the incomes of other small business owners.

While considering bankruptcy is a stressful thought for almost all business people, attorneys who are thinking about bankruptcy have some unique concerns. The attorneys that I have counseled have all been worried that filing bankruptcy might mean that they wouldn’t be able to continue to practice law.

Here are some typical questions that I get from attorneys:

• Are attorneys allowed to file for bankruptcy?
• Is filing bankruptcy a violation of the rules of professional conduct?
• Can an attorney continue to practice law after filing bankruptcy?

Here’s what I tell attorneys who contact me for bankruptcy advice:

1.  An Attorney Has a Constitutional Right to File Bankruptcy. Article I, Section 8 of the United States Constitution provides that Congress shall have the power to establish uniform laws on the subject of bankruptcies throughout the United States. The Bankruptcy Code clearly provides that any person may voluntarily file a petition in bankruptcy. This means that anyone, even an attorney, can file for bankruptcy relief.

2. It’s Not Unethical for an Attorney to File Bankruptcy. There are many published Oklahoma cases in which a party to a case is an attorney who has filed personal bankruptcy. Not one time has an Oklahoma court concluded that it is unethical for an attorney to file for bankruptcy and no Oklahoma attorneys have been disbarred from the practice of law due to filing bankruptcy. The active roll of Oklahoma attorneys contains the names of many attorneys who have filed personal bankruptcy.

3. A Bankruptcy Trustee Will Scrutinize An Attorney’s Assets. In Chapter 7 cases, trustees are motivated to look for non-exempt assets that can be liquidated and distributed to creditors. One of the primary motivations is that Chapter 7 trustees get a cut of the proceeds realized from the liquidation of non-exempt assets. Chapter 13 trustees look for the same assets, but to determine the percentage a debtor must repay his unsecured creditors.

A trustee will therefore inquire about uncollected accounts receivable owed by clients, uncollected referral fees owed by other attorneys, and pending personal injury cases with potentially large recoveries. If the attorney-debtor is employed by a firm, the trustee might inquire about the likelihood of receiving bonuses. If the attorney is a partner, the trustee will look at the value of the partnership interest. If an attorney-debtor has his own practice, the trustee may inquire about the value of office equipment and any assets owned by the practice. Depending on the situation, the trustee might want to also examine the attorney-debtor’s financial books and records, which is something a trustee might do with any consumer filer who has his own business.

4. Attorneys Who File for Bankruptcy Will Be Able to Continue Their Law Practices. Although a law practice is technically a non-exempt asset, it is a personal services business bound by ethics laws that a trustee could not realistically sell. Thus, sole practitioners filing for bankruptcy relief are usually able to continue their practices without any problem.

5. Unique Issues Attorney-Debtors May Encounter. Since attorneys have the potential for earning substantial income, both the case trustee and the Office of the United States Trustee, which is the governmental agency that oversees bankruptcies, will want to make sure that an attorney who files for Chapter 7 relief is doing so in good faith. In other words, they want to make sure the attorney-debtor will not be in a position to earn a hefty salary after filing that could have enabled him to make some payments to creditors. If that was the case, the attorney-debtor can still file for bankruptcy, but he would have to consider a case under Chapter 13 instead, which would involve a payment plan.

6. Attorneys Who File for Bankruptcy Won’t Be Treated Any Differently By Judges Or Trustees. In my experience, bankruptcy trustees and judges treat attorney-debtors the same way as any other debtor. Attorney-debtors do not receive any special treatment, nor are they disparaged or made to feel embarrassed in any way.

7. Attorney-Debtors Should Not Represent Themselves. Like any other pro-se debtor, an attorney-debtor can obviously represent himself. However, it would be much wiser for attorney-debtors who do not regularly practice bankruptcy law to hire a bankruptcy attorney to represent them. A knowledgeable, experienced bankruptcy attorney will know the Bankruptcy Code, Bankruptcy Rules, the local rules and practices, and will be best equipped to guide the case to a beneficial conclusion.

So in conclusion, attorneys who have serious debt problems should consider bankruptcy as an option.

If you’re an attorney who is struggling with too much debt and you have questions about bankruptcy, contact me today to schedule a FREE initial telephone consultation. Just fill out the Contact Dan form on the far right side of the page and click the Submit button and I’ll get back with you as quickly as I can. Or just give me a call at 918-615-8260.