Judge Learned Hand and
Advising Bankruptcy Clients
By Eric Olsen, Esq.
HELPS Nonprofit Law Firm
Salem, Oregon
T
he only instance on record
of a person being hit by a
meteorite is Ann Hodges, who
was sleeping on her couch one
afternoon in 1954 in Oak Grove,
Alabama, when a meteorite crashed
through her roof, bounced off the
radio, and struck her. She survived.
We don’t live our lives worrying
about being hit by a meteorite, and
we certainly don’t make decisions
based on the possibility that we
could get hit by a meteorite. But I
have talked to many clients in the
last 40 years who were given advice
as though they were in imminent
danger of being the next meteorite
strike victim.
By nature, bankruptcy attorneys
do a lot of analyzing in the process
of providing advice. They analyze
a means test, determine time
periods necessary to discharge
income taxes, consider issues of
discharge, analyze income and
expenses, decide whether to file a
chapter 7 or 13, formulate a chapter
13 plan, etc. Careful analysis is
always important when helping
people solve financial problems.
However, sometimes analysis can
take on a life of its own and maybe
not produce the best option for a
client considering bankruptcy. One
thing I noticed over the years was
a tendency by some attorneys to
become so focused on the minutiae
that occasionally they lost the big
picture. It is always important to be
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willing to step away from the tree
and look at the forest.
Advising clients using the “Hand
Rule” In 1947, the famous jurist
Learned Hand offered a theory
of negligence that came to be
known as the “Hand Rule” from
United States v. Carroll Towing
Co., 159 F.2d 169 (2d. Cir. 1947).
Although the calculus was applied
to negligence, the force of its
wisdom can also apply to analyzing
and counseling clients regarding
bankruptcy options.
The concept can be expressed in an
algebraic formula (B = PL) in which
B is the cost (burden) of taking
precautions, P is the probability of
loss, and L is the gravity of loss.
The product of P x L must be
greater than B to create a duty of
due care for the defendant. Here is
an example how the Hand Rule can
be helpful in analyzing bankruptcy
options:
Assume a widow has $1600 in
income and a $500 house payment
with $20,000 equity in her home
over the homestead exemption.
Her husband passed away several
years ago. She owes $25,000 in
credit card debt. She can’t file a
chapter 7 because of the excess
equity in her home. She doesn’t
want to sell the home if it can be
helped. She can no longer afford to
pay the credit cards. One or more
Spring 2018
of the credit card companies could
sue and get a judgment lien – a
scary thought to her and all seniors.
If she files a chapter 13 bankruptcy
to pay the debt because of the non-
exempt equity in the home, the
chapter 13 payment could easily be
$500 per month for five years. This
leaves her a meager $600 to live
on each month. Even if her extra
income were twice that, she would
be a very