This is a Countdown of the Top 12 Malpractice Mistakes Made by California Bankruptcy Attorneys
Note: This article focuses on California bankruptcy attorneys and references California and 9th Circuit law. However, most of the concepts presented here are applicable to bankruptcy attorneys in other states. The 12 issues are not an indication of priority in importance.
Mistake #1: not trying to obtain an extension of the automatic stay after a prior dismissal of a case within the last year.
Mistake that puts you at risk #1 that can have you sued for malpractice:
Failure to get an Automatic Stay extended in a second bankruptcy case after dismissal of a prior bankruptcy case is unfortunately a very common problem for attorneys.
It is not uncommon to see people who filed their own Chapter 13 case. As can be expected, the plan fails and the case is dismissed. Then they go to a bankruptcy attorney.
The attorney says “fine. We will just file another case for you.”
The bankruptcy attorney knows (or should know) that the debtor filed another case and it was dismissed in the last year. It is a simple thing to look the client’s name up on the National Pacer system can spot this issue so you should not be blindsided even if the client claims that there was no prior case dismissed in the prior year.
The attorney thinks that everything is fine until a few months later the client calls the bankruptcy attorney saying that someone has come to their home and told them that their home sold at a foreclosure auction. They no longer own their home. The same can be true when it comes to repossession of a vehicle.
The problem is that the automatic stay restraining order ends after 30 days in the second case. The bankruptcy attorney needs to get a hearing to extend the automatic stay within that 30 days. In fact, they need to obtain a bankruptcy Judge’s Order extending the automatic stay within the 30 day window.
Keep in mind that the bankruptcy Judge could rule against you and not extend the automatic stay. Make sure you have signed disclosures from the client acknowledging that they understand there is no guarantee that the automatic stay will be extended.
There are cases out there where the motion to extend the automatic stay was denied. The Judges often will tell the debtor that just because they had an incompetent attorney, or they represented themselves is not a basis for extending the automatic stay.
For that matter, if they did not cooperate with their attorney and that was why the case failed, the Judge is not going to have a lot of sympathy for the debtor. The motion is supposed to show a significant change in their financial situation to allow that extension Order to be entered.
This can be dangerous territory for an attorney. Once the automatic stay is gone, it cannot be resurrected. This is a real problem because often you cannot get to a hearing in 30 days or less unless you get an order shortening time to squeeze into that time window.
According to some courts, the loss of the automatic stay applies to a Chapter 7 Trustee if the case is converted. If there is equity in assets such as a home, equity can be lost for both the Chapter 7 Trustee. Worse, the Debtor’s exemption in their home goes away.
There are some courts that say that a Confirmed Chapter 13 plan can replace the lost automatic stay. You serve your client best by not relying on the Confirmation of the Plan to save you.
I recently saw a case where that happened to a Debtor. The attorney who failed to extend the automatic stay is being sued by the Debtor for malpractice. You don’t want to be in that attorney’s shoes.
Think about this. The debtor gets no automatic stay in a 3rd case where 2 prior cases were dismissed in the prior 12 months. If you mess the second case up there is no third bite of the apple.
I hope this information helps keep you out of a malpractice action and has helped your client.
Stay Tuned for the next installment of