Consumer Bankruptcy Journal Spring 2018 | Page 38

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 38 CONSUMER BANKRUPTCY JOURNAL 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