Ethical Issues and Malpractice Prevention: Preparation of the Schedules and the Statement of Financial Affairs

By: Kevin M. Lippman (Co-speaker) and Davor Rukavina (Co-speaker)
Presented at The Consumer Bankruptcy Program sponsored by The University of Houston Law Foundation
October 2006

I. INTRODUCTION

The authors1 of this article have, collectively, practiced in the realm of bankruptcy law for sixteen years, and both previously were judicial clerks for bankruptcy judges with heavy consumer dockets. In that time, they have personally seen (and litigated) certain issues that arise more frequently in consumer debtor cases then one might expect – issues rooted in basic scheduling problems, and issues which can have dire consequences for the debtor and, by extension, the attorney for a debtor. Accordingly, this Article identifies some of the most prevalent scheduling problems, the potential consequences thereof, and provides suggested means by which attorneys with practices that include representing consumer debtors can avoid the problems.

The authors’ personal experiences regarding the frequency of scheduling errors, including litigating both sides of some of the issues addressed in this Article, are supported by empirical evidence. In 1998 and 1999, the Honorable Steven W. Rhodes, United States Bankruptcy Judge for the Eastern District of Michigan, undertook a comprehensive study of scheduling errors in cases filed in his district, which was published by the National Conference of Bankruptcy Judges in the American Bankruptcy Law Journal.2 Judge Rhodes’ findings, and the conclusions drawn therefrom, are enlightening. For purposes of this Article, however, the conclusion drawn by Judge Rhodes that is most on point is his conclusion that “the lack of care and understanding of the debtors and their attorneys in fulfilling the disclosure requirements is palpable and disturbing,” although Judge Rhodes points to other contributing factors, beyond the control of debtors and their attorneys, as contributing to scheduling problems.3

Judge Rhodes’ findings include the following: (i) 54% of married debtors failed to disclose whether property was owned separately or jointly; (ii) 81% of debtors paying rent failed to schedule security deposits; (iii) 73% of debtors failed to schedule life insurance assets, although they scheduled life insurance expenses; (iv) 54% of debtors who scheduled pension income, pension expenses, or union expenses failed to schedule pension interests; (v) 16% of married debtors failed to schedule whether debts were separate, joint, or community; (vi) 83% of debtors with business income or expenses failed to attach the required detailed statements of income and expenses; (vii) 85% of renting debtors failed to schedule leases; and (viii) 14% of debtors with secured debt failed to address some secured debt in their statements of intention.4 These are but a few of the most common scheduling errors, and Judge Rhodes’ article includes additional frequent categories of errors which should be of interest to attorneys representing debtors. Admittedly, some scheduling errors are minor, and they do not necessarily evidence any dishonest motive. But, as explained in this Article, seemingly minor scheduling errors can, and frequently do, give rise to draconian results.

TO READ MORE, CLICK THE PDF ICON BELOW: