Should your bankruptcy lawyer be working for a debt-relief group?

Here’s a situation that I see coming up more and more in Massachusetts lately, sometimes with some ugly results: debtors who turn to “non-profit” debt-relief groups who “provide” them with a lawyer who prepares a bankruptcy case for them.

So what’s wrong with that, you ask?

First, the quality of the representation is usually extremely low — bad enough that debtors have to worry about whether their case will make it through the system at all.

Exhibit A is the Silveira case (June 22, 2012), a recent one from Worcester. Here, Judge Hoffman actually ordered the attorney to “disgorge” the fees he had collected — cough them back up, in other words.

This lawyer appeared to be hired not directly by the debtors, but provided by a group called either the “Alliance for Affordable Housing” or the “Home Defenders Fund.” Unfortunately for the debtors, most of the documents required by the bankruptcy process were not filed, and when the lawyer was giving some time to fix this problem, he didn’t do it.

By the time the documents eventually got filed, the United States Trustee was prowling around the case, trying to find out how exactly the lawyer was getting paid, and how much.

In the end, it turned out the debtors paid AFAH a total of $4349 before and after their bankruptcy case, from which $850 was given to their attorney, and $281 used to file their Chapter 13 case.

For this, the debtors ended up with a lawyer who apparently didn’t even know how to submit the basic bankruptcy forms, never mind being unable to craft a valid Chapter 13 plan that would help save their home.

Ultimately, the judge in the Silveira case decided the lawyer really had two clients — the debtor’s and the AFAH, which was a conflict of interest, and required him to return the fees he was paid.

Another case is one not reported in the books, but that I saw personally at a creditor’s meeting in Boston. Again the lawyer was being paid by some group with a high-sounding name, but apparently not much to back it up. The United States Trustee was involved in this one, too, and gave both debtor and counsel and royal reaming at the meeting, which was continued, meaning more disasters to come.

The moral of these stories is straight-forward: debtors will usually be much better off sticking with a single lawyer who has a private practice, instead of being provided with quasi-legal services from an organization that may or may not be non-profit.

 

By Doug Beaton

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