JUDGE LEARNED HAND
as a judgment holder foreclosing on
nonexempt home equity), times the
magnitude of harm, L (losing a home
by foreclosure). The conclusion is
that the probability of harm is like a
meteorite. Therefore, the burden of
a bankruptcy is not logical.
Here are other examples in which
the Hand Rule can help suggest the
best option in certain situations.
What chapter bankruptcy to file
Specific facts might dictate that a
chapter 13 needs to be filed for any
number of reasons. But stepping
back and looking at the forest,
perhaps a chapter 7 could be filed
by adjusting income or waiting. This
would save the client money and
get them on the road to recovery
more quickly. The Hand Rule might
indicate the burden of filing a chapter
13 immediately, extra cost and time
in a bankruptcy, outweighs the low
probability of harm by waiting to be
able to file a quicker and lower cost
chapter 7 later.
Then, of course, there are times
a chapter 13 makes more sense.
Perhaps a chapter 7 trustee could
try a shakedown because the home
could possibly be sold and provide
a dividend for unsecured creditors,
whereas a less aggressive chapter
13 trustee would rely on a county
appraisal and a 0% plan would
be approved. Chapter 7 and 13
trustees approach cases in different
ways because they are paid in
different ways. In this example,
the burden of chapter 13 now
is outweighed by the difficulty a
chapter 7 might cause to a client,
therefore justifying a chapter 13
filing.
Timing Part of any bankruptcy filing
analysis is the consideration of
timing. For example, I would often
counsel unemployed and judgment
proof clients to wait before filing.
I compared finances to hills and
valleys. It was normally best to
file a bankruptcy when things
were on the way up, when nothing
further bad was likely to happen.
Of course, there are exceptions.
For some, bankruptcy is the
psychological impetus they need
to reboot their financial life. Once
again Learned Hand’s calculus can
help: the investment of precaution,
B (spending resources on attorney
fees and losing the option to
discharge potential future debt) is
not in proportion to the probability
of harm, P (no harm as there are
no wages to be garnished) times
the magnitude of harm, L (a delay
in filing could conceivably delay
restoration of credit).
The solution to every problem is
not always bankruptcy Everyone
is the business of selling his own
widgets. As the Executive Director
of HELPS, I regularly find judgment
proof seniors signed up with debt
settlement and nonprofit debt
consolidation companies.
They
are never told, “By the way, do
you realize you don’t have to pay
this old debt your Social Security
benefits and retirement income are
protected and can’t be taken from
you.” Many seniors are reduced to
utter poverty by making payments
to these companies for debts they
can’t afford to pay.
always felt uncomfortable when I
saw an elderly, judgement proof
widow or couple in a 341 meeting.
There may have been valid reasons
for them to file, but I always
wondered if perhaps there could
have been a better solution. As the
Executive Director of a nonprofit law
firm that helps lower income seniors
nationwide, I am proud how often a
senior reports that an attorney told
them their income was safe and
they didn’t need to file bankruptcy.
Conclusion When I was the senior
partner of a large consumer
bankruptcy firm, younger associates
and even partners would often pose
questions about what to do in a
certain case. Getting reliable advice
or strategies on how to handle a
complicated case is never a bad
idea. I found the Hand Rule a good
guide when advising clients about
their bankruptcy options. There is
also something to be said for good
Karma. In simple terms, do good
for others and good will come back
to you. You cannot imagine the
good that can come from a client
who realizes you gave up a fee with
your advice. These clients return,
and you will have a referral source
forever.
Bankruptcy attorneys are also
selling their own widgets –
bankruptcy. However, as attorneys
we should live by a higher standard
than these companies. We are
guided by strict ethical guidelines
to act always in a client’s best
interest.
Bankruptcy attorneys
should be vigilant in ensuring their
own financial interest never dictates
what should be done for a client. I
National Association of Consumer Bankruptcy Attorneys
Spring 2018
CONSUMER BANKRUPTCY JOURNAL
39