I receive questions from various websites regarding bankruptcy and other issues. Most of the time, I do not respond, because the questions are usually uninteresting; other attorneys have responded, and I do not have time. I found this question interesting, because it addresses a fairly common problem that is very easy to avoid. It also deals with the issue of bankruptcy attorney malpractice, which is different from other types of attorney malpractice.
Question: Is my attorney at fault for not warning me regarding my loan?
Question Detail: I’m in bankruptcy. My car broke down several months ago, my lawyer advised me to get a reliable car before filing. I do not have a record of asking her if a loan from my parents would be a problem but it was a verbal conversation. I do have records telling her that my parents loaned me the money for the car and she said it “shouldn’t be a problem.” This written record is dated the day after the purchase. Now the trustee wants my car or cash for difference in exemption. And now all of a sudden the trustee also wants money back on income tax refund. My refund went towards the car also. Loan-10,000. Refund-5000. Car total-14,693. Is my lawyer at fault for telling me “shouldn’t be a problem” now I’m right back where I started in debt. Is the trustee allowed to make a claim on my tax refund?
Answer:
Attorney mistakes in bankruptcy are treated differently than attorney mistakes in other areas of law. Your question demonstrates why it is so important that you choose an experienced bankruptcy attorney at the beginning. Clearly, your lawyer lacked experience. While it is fair to say that cars, and especially cars that have car loans on them, are usually “no problem” in bankruptcy, that is not always true. Cars are often problems when a family member makes the loan, such as in your case. Had you have borrowed the money from a bank; the bank would have put a lien on your title. In that situation, you would have had very little equity in your car, and thus the car would have been “no problem”. However, family members are rarely put on the title as lien holders. As a result, they are “unsecured creditors” and your car is unencumbered. An experienced bankruptcy attorney would have been familiar with this problem, and known to head it off. Yours did not.
I am not going to delve into the issue of whether or not your attorney was “at fault”, because you have a second problem. If your attorney did commit malpractice, she did so before you filed your petition. As such, your claim against your attorney is a pre-petition claim, which needs to be disclosed on your petition, and is now the property of the Trustee. It sounds like your Trustee is already pretty aggressive about grabbing assets. The Trustee may well assert an interest in such a claim.