Attorney / Client Privilege

[ketch22]

I live in Colorado. When I filed bankruptcy (341 was Dec. 18th, 2010) my attorney was aware that we had adopted a little girl. Never were we told about the adoption credit and that we should wait to file bankruptcy after received this large sum via tax refund. We had never heard of the tax refund but expect that a good bankruptcy lawyer would have as it could be collected by the trustee. We were just told to claim as many exemptions on my W2 as I possibly could... which I already do.

Before the adoption credit I owe 496.00 Federal and 968.00 State. After the adoption credit we are due 13,449.00. Now I know this is probably all going to the trustee, unless this is also considered exempt... but I don't know until my attorney returns my calls.

My problem is this. I emailed my attorney last week and told him about the possibility of this refund and he stated that he would work on it and get back to me. Today I received a letter from the trustee stating that he heard about my refund. "You and your attorney were correct in advising me of these refunds." I did not advise the trustee of this refund, so my attorney did. He represents me... not the trustee. Did he breach attorney / client privilege? And do I have recourse?

[free2breathe]

Just hazarding a guess here, but I bet that this doesn't fall under attorney/client privelege. He is representing you in a bankruptcy case, in which all funds that belong to the bankruptcy estate are at risk of being taken by the trustee to distribute to creditors. If the adoption was done before the bankruptcy was filed, and you were entitled to the credit, it would belong to the estate unless there is an exemption for it. If your attorney didn't tell the trustee, he'd likely find out about it anyway. Trustees have the right to request tax records.

Hopefully Des or someone will be able to shed more light on this though.

[discouraged]

Thanks for jumping in freetobreathe. That was my thought also. I felt your attorney was protecting you from any backlash by being up front with the trustee. But, I am not knowledgeable on legal matters so hopefully one of the lawyers on the forum will answer your question.

[justbroke]

This whole refundable tax credit, for adoptions, is new in tax year 2010. It used to be a credit that you could carry forward in other years. There's no caselaw on this topic at all because this is new. You and your attorney should prepare to fight the Trustee and make the Trustee understand that you will fight. This is taking a benefit for the child away from the child; in my book.

You'll be setting new caselaw with this.

[HHM]

Your attorney cannot help aid you committing fraud.

The right to the refund already arose, so the attorney client privilege issue is moot. Also, the BK attorney is not a tax advisor. Now granted, a good attorney should probably be aware of the issue, but at the same time; it wouldn't have mattered. You had to turn over your tax return anyway. As Justbroke pointed out, this issue is relatively new and requires a creative and aggressive attorney.

[justbroke]

Somehow, I was trying to find an angle to declare it a benefit under the Social Security Act. Not creative enough, I suppose.

[HHM]

Yep, these sorts of tax credits can wreck havoc in the BK scenario. However, I guess from a big picture scenario, out of the 1.3 million people filing BK, how many actually have this issue (not many, so I suppose I don't fault Congress for not having the foresight to deal with the BK issue).

The starting point for the argument would be the actual code section that authorizes the statute. I like the argument that it is for the benefit of the adopted child, but that is probably a stretch.

I guess if we back up a bit, let's say you were in debt and you got this tax credit, odds are, you would have spent a good portion of it on reducing debt (or, at least, that is what you "should" do), so the net result is the same.

[gatekeeper]

Even, if you nor your attorney had advised the trustee of the refund. The tustee would had found out anyway, by requesting a copy of your tax records, or that the IRS would had told on you. My trustee had inform the IRS that I was in bankruptcy proceedings and if I received any refund, the money should go directly to the trustee. Now, if you nor your attorney did not inform the trustee nor the court, most likely your discharge would be over turned for failing to properly disclose the information about your refund. So, it was the right thing by your lawyer in informing the trustee and the court about your refund. Most likely most of the refund, depends on the date you file would be turn over to the trustee. As for my refund, I had to turn over 71 % of my refund to the trustee.


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The information provided is not and should not be considered legal advice or establish an attorney/client relationship. Nor do I promise or guarantee that the information contained on this post or any linked site is accurate, correct, complete, or current. You should seek the advice of competent counsel licensed to practice in your state to answer specific legal questions.

[vicmost]

That's a big bummer. Sorry they took your refund. Kudos to you for adopting a child.
I think it would be a very noble thing for an attorney to try and make an argument that the statue was for the benefit of the child. I can't think of a better reason to do so. Which brings up a point, what does actually motivate a bk attorney to argue a case? Presumably all of the clients are broke, so there's no money. And there is no shortage of filers right now...Is it just so they can be know among there peers or..???

[HHM]

Presumably all of the clients are broke, so there's no money.

That is actually more myth than reality. Most people who file BK are in the middle class, are actually employed, and do have income. There problem is budget and savings, not necessarily being broke.

In the bankruptcy industry, in reality, you have paper-pusher attorneys who will never argue or fight anything, and then you have real attorneys. However, as with any legal help, it is pay to play.

Sometimes, if the issue is particularly novel, a "real" attorney will take it on. Also, some attorneys actually do charge a flat rate and guarantee to cover any issue that comes up in a case for the 1 fee but these attorneys are more expensive (for good reason) and unfortunately, many individuals are too short sighted about their case and believe, wrongly, that one attorney is just as competent as another.

[vicmost]

That is actually more myth than reality.

In the bankruptcy industry, in reality, you have paper-pusher attorneys who will never argue or fight anything, and then you have real attorneys. However, as with any legal help, it is pay to play.

Sometimes, if the issue is particularly novel, a "real" attorney will take it on. Also, some attorneys actually do charge a flat rate and guarantee to cover any issue that comes up in a case for the 1 fee.

Thanks for the succinct explanation. I guess I was viewing the world through my own reality - broke and no "real" attorney...lol