Possible Ineffective Bankruptcy Counsel

[ColSandurz2]

Last year I had to file for Chapter 7 personal bankruptcy. Having never done this before, I retained a bankruptcy attorney that I assumed would be an expert in doing this. While the bankruptcy was discharged without any real difficulty, it seems as if the instructions and assistance he provided had some serious flaws in them, including:

- instructing me to include all accounts in my bankruptcy - I'm not sure if this was the correct thing to do, especially since now accounts that I had a $0 balance with and could have simply closed are showing on my credit reports as "included in bankruptcy" and possibly lowering my credit score

- telling me to include all of my student loans in the bankruptcy (despite that fact that I don't think these can very easily be discharged by bankruptcy) - he then appeared very unsure of whether they were really discharged or not, and even worse, by including them in the bankruptcy, it triggered clauses in some of the contracts that allowed them to be paid by the loan insurers and then full payment was expected from me to the loan insurers. While it's very possible this might have happened anyway, at the least I would expect him to alert me of this ahead of time* so I could prepare or see if there was any way to mitigate these issues (since now I'm dealing with collection agencies)

*And yes, I would expect that in today's day and age, a bankruptcy attorney would be aware of this caveat with respect to student loans - is that expecting too much?


Anyway, I'm just wondering if I have any recourse against the attorney, or can do anything to try and fix some of the above problems? Any help is greatly appreciated! Thanks.

[justbroke]

instructing me to include all accounts in my bankruptcy

Yes, all creditors should be included. Whether a creditor where you have a $0 balance should be included can be debated both ways. Personally, I would not include an account with a $0 balance as I would consider this as "not a creditor" under the bankruptcy definition (a creditor is an entity to which you owe a debt).

Additionally, most creditors will close any un-scheduled accounts anyhow. I had several $0 accounts and the creditor in every single case, closed every account.

telling me to include all of my student loans in the bankruptcy (despite that fact that I don't think these can very easily be discharged by bankruptcy)

You must list EVERY creditor. That includes student loans! You do not get to pick and choose which to include. The purpose is to put creditors on notice that a bankruptcy case has been filed, and that there may be assets to distribute in that bankruptcy case. You may not realize this, but a Chapter 7 discharges "all" debts that arose prior to filing whether or not schedules. The exception is for Chapter 7 chases where there are assets to be administered.

and possibly lowering my credit score

In the end, the fact that you filed bankruptcy, a Chapter 7, will weigh much more heavily than one or two of your accounts, which had a $0 balance, reporting as IIB. Your pre-filing payment history is MORE important to recovery than an IIB account itself. As the bankruptcy and accounts age, they will have less impact A Chapter 7 will be on your credit report for 10 years, while IIB accounts will be on there for 7 years.

Bottom line, the Chapter 7 is lowering your score. Within 2 years after discharge, given that your pre-filing history is perfect, you can be at a 700 FICO score (true story!).

[IBroke]

- instructing me to include all accounts in my bankruptcy - I'm not sure if this was the correct thing to do, especially since now accounts that I had a $0 balance with and could have simply closed are showing on my credit reports as "included in bankruptcy" and possibly lowering my credit score..

Hmm...yeah...that's an unnecessary hassle. Lawyers do this as a safety-precaution in order to have you covered in case there is indeed an amount owed. Mine wanted to list these accounts as well but I told him not to.

I would suggest that you should check if you have any documentation (like statements etc.) that show that your balance was $0 the day you filed. I printed out account-snapshots on my $0-accounts the day I filed just to be on the safe side in case somebody tried to report them as IIB. If you do have proof, you could try and contact the creditors in question and explain to them that it is technically impossible to actually include a $0-balance account in bankruptcy and ask them to remove the notation. If that doesn't work, you could try the same with the credit-bureaus. After all, bankruptcy deals with liabilities and assets - but not with accounts. You can even go so far and claim that a petition that lists $0-accounts is an inaccurate one because there is no section on the petition where you should list $0-accounts.

I'm not an expert on student-loans (never had one) but based on what I heard, student loans can't be discharged through BK. But again, I'm sure others can chime in and give a better answer on that.

[IBroke]

Yes, all creditors should be included. Whether a creditor where you have a $0 balance should be included can be debated both ways. Personally, I would not include an account with a $0 balance as I would consider this as "not a creditor" under the bankruptcy definition (a creditor is an entity to which you owe a debt)..

Exactly.

I almost fell off my chair laughing when I once suggested that to a member on myfico.com and in return, was accused of "bankruptcy fraud" for not listing my $0-accounts....

[justbroke]

Exactly.

I almost fell off my chair laughing when I once suggested that to a member on myfico.com and in return, was accused of "bankruptcy fraud" for not listing my $0-accounts....

Super funny because...

11 USC 101, the part of the code that has the definitions, says that a "creditor" means an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor".

Then you define claim in the same section. A claim is a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured".

Pretty easy to me to articulate that a creditor is an entity that has a right to payment. You are right, IBroke, most attorneys will list them all just for safety (just in case!). (A creditor with a $0 balance before filing may "have a claim that arose at the time of filing".)

I did not list two of my accounts which both had a $0 balance. One creditor reports it as closed and the other reduced my credit limit to $0 (effectively closing the account).

[IBroke]

I did not list two of my accounts which both had a $0 balance. One creditor reports it as closed and the other reduced my credit limit to $0 (effectively closing the account).

I actually got very lucky because both $0-accounts I had survived. One was a secured CC and the other one was a low-limit card - both with very small "unknown" banks. I knew my chances on the secured weren't too bad.

I did, however, list the security-deposit as asset when I filed - so everything was as accurate as possible.

[ksgirl38]

I was instructed by my attorney to list all $0 accounts and closed accounts, just in case there were outstanding amounts I didn't know about. I went against this advice and did not include my Victoria's Secret and Eddie Bauer credit cards and they both survived BK. Not only that, but my credit limits increased. Not that it matters, I use each about once a year anyway. If you run a credit report a few months before BK and know there is no balance then it doesn't hurt to leave them off and see if they survive. Worst case is the creditor will determine to close them out on their own.