How Can We Sleep When Rule 2019 Is Burning?

I wrote a short article on a very nerdy commercial bankruptcy litigation issue for the American Bankruptcy Institute. The article was published in the spring newsletter of the ABI's Bankruptcy Litigation Committee. I have received good feedback on it so I thought it might be worth sharing a link here.

Regular readers of A Clean Slate might recall that I discussed Rule 2019 a little back in January. I had forgotten that I promised to follow up when I had more information. Better late than never I guess.

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When Should You Consult With A Restructuring Attorney

A couple times recently that people have asked me the same simple question and been surprised by the answer.

The question: "When should people call you?"

The answer: "When the first really bad thing happens."

Let me give a little context. The first time I heard this question, it was from a consultant who was only vaguely familiar with a bankruptcy and restructuring practice. The second was from another attorney who has clients who might need my services. Both wanted to know at what point in someone's life they should contact me. And both expected something to the effect of, "When debts are so bad that people are having trouble paying bills."

You certainly can contact me then, but it would be better if you did it when you saw the first sign of financial trouble. That might be illness, job loss, hours being cut, divorce or anything else of the sort. You don't have to wait for the train to hit you before you look for help. When you see the train coming and don't know whether you might be able to get out of the way, that's when you should call.

When I am involved early, we can look and see whether you might be able to avoid bankruptcy through some decisions. If bankruptcy is inevitable, we might have more flexibility about under what chapter to file, the timing of the filing, and some choices we can make. When I get involved as things are spiraling out of control, our options are often more limited. I personally don't charge for initial consultations and often meet with people a couple times before they retain me.

So remember that you don't have to wait for the train to hit you before you seek help.

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How I Practice And Why

In the TV show M*A*S*H, there is a scene in which Colonel Potter is trying to reach a general who happens to be the head chaplain for the U.S. Army. He calls the general's office and asks for the general. He is surprised to discover that he is speaking to the general himself. Colonel Potter then utters the famous line, "The general answers his own phone. He must be a Unitarian."

I like the story for two reasons. First, I happen to be a Unitarian. Second, I also answer my own phone.

I was reminded of the story last week when a prospective client called and was surprised to reach me immediately. This has happened to me a fair number of times. People calling an attorney often expect to have a receptionist answer the phone. I do happen to have a receptionist for when I am on the phone, with a client, or away from my desk. But I usually answer my own phone.

Why?

Because people who call me want to talk to me. They don't want to talk to someone else.

The idea is the same throughout my practice. When a client comes to meet with me, they meet with me. When they email me, I respond directly. Although I regularly work with paralegals and other attorneys on certain cases, almost all contact from my firm goes through me. I go to 341(a) meetings with my clients rather than having an appearance attorney or associate cover the meeting. And I do most of the work myself.

Now I happen to have a lot of backup when I need it. In addition to my paralegals and receptionists, I am active on multiple email listservs with other restructuring professionals and have professionals with whom I consult on various issues.

Still, I manage just about everything in my practice myself.

Why?

Because it works better for both my clients and me.

It works better for clients because they get direct representation. Clients don't want to be pawned off on junior attorneys and support staff all the time. They want contact with their primary attorney. They want to receive counsel directly from him or her.

It works better for me because I get to practice law rather than spending a lot of time supervising other attorneys. I know from my days at large law firms that one of the tougher issues is "leverage" -- how many younger attorneys are being supervised by older attorneys. I would much rather spend my time practicing law than supervising a large staff. I would much rather have a reasonable number of cases and handle those well than try to be a huge bankruptcy mill that practices assembly-line law.

So when you call, don't be surprised if I answer the phone.

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FTC Finds Less Than 10% Success Rate In Debt Settlement

Readers of A Clean Slate might recall that I have written about Debt Settlement in the past and have suggested that it generally isn't a good idea. I received a number of interesting comments in response to the post, few of which agreed with me. The federal government recently weighed in the matter though and their findings are consistent with what I have seen.

The basic allegation will surprise few in my field: Debt settlement firms are being accused of "fraudulent, abusive, or deceptive practices that leave consumers in worse financial condition" than they were in before. The United States Government Accounting Office did some investigation. The GAO covertly contacted twenty debt settlement firms while posing as consumers, interviewed industry stakeholders, and reviewed legal actions at the federal and state level.

What was the result of the study?

"GAO's investigation found that some debt settlement companies engage in fraudulent, deceptive, and abusive practices that pose a risk to consumers."

What practices are these?

Collecting fees ahead of settling consumer debt. The FTC has labeled this practice "harmful" and has proposed banning it. Yet seventeen of the twenty firms contacted do it.

Informing consumers to stop paying their creditors, even the accounts that are current. Nearly all of the companies that the GAO contacted advised this. Frankly this is arguably the unauthorized practice of law.

Providing false information about the success of debt settlement. Some debt settlement companies "to its fictitious consumers, such as claiming unusually high success rates for their programs--as high as 100 percent." The FTC and state investigations generally found a less than 10% success rate in debt settlement.

Linking debt settlement services to government programs. The government actually does provide a vehicle for debt settlement; it's called the Bankruptcy Code. Rates of success in individual bankruptcy cases are a lot higher than 10%, by the way.

Here is the kicker. "GAO found the experiences of its fictitious consumers to be consistent with widespread complaints and charges made by federal and state investigators on behalf of real consumers against debt settlement companies engaged in fraudulent, abusive, or deceptive practices."

And I found the experiences to be consistent with what my clients have described.

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