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March 11, 2007

Fleeing Bankruptcy? (Part III) - Guest Post - Richard Maseles

Update: According to CreditSlips.org and Bob Lawless bankruptcy filings are up 18% in February compared to January ...."if this keeps up this year could see double that of last year...nearly 1 million filings." Prior to bankruptcy reform filings were around 1.5 million per year. And most filings are personal bankruptcies.

Richard Maseles works in the General Counsel’s Office of the Missouri Department of Revenue, practicing bankruptcy law almost exclusively. In what seems like a former life, he practiced mortgage lending law with a couple of firms, whatever-walked-in-the-door law as a solo, and was a legal editor for Lexis-Nexis, the State Bar of Texas, and the Missouri Office of State Courts Administrator. He is a graduate of the University of Houston Law Center and is admitted to practice in Texas, Missouri, and more federal courts than he can remember offhand. His statements here do not reflect the opinions, thought processes, or anything else of the Missouri Department of Revenue.

I have commented on the value of pursuing bankruptcy as a practice area here and here when I questioned whether lawyers should really be fleeing bankruptcy. I'm very pleased Attorney Maseles agreed to guest blog because I think it is important one hears from the experts when it comes to decisions like practice areas. And he is unequivocally an expert.

Consider a Bankruptcy Practice:

By Richard Maseles, Esq.

I think it was one of the Rothschilds who coined the aphorism, "buy on cannons, sell on trumpets," only they probably said it in French. The idea behind the saying is that it’s smart to be a contrarian in investments, even though it may go against one’s instincts.

What does that have to do with bankruptcy? My argument, new or transitioning solo lawyers ought to look at practicing bankruptcy law, takes exactly that sort of contrarian view. Consider these facts:

Filings declined 68% in the quarter ending September 30, 2006, compared with the prior year’s quarter;

The Bankruptcy Abuse Prevention and Consumer Protection Act of 1995 (BAPCPA) imposed what many consider to be onerous new restrictions on debtors’ attorneys regarding, among other things, their due diligence;

A number of attorneys have left the field.

Therefore, under the Rothschild rule, it’s a great time to become a bankruptcy lawyer. Here’s why: (a) there will always be a base-level need for bankruptcy practitioners, no matter the economic climate; (b) mortgage and consumer loan default rates continue to rise, which augurs an accompanying rise in bankruptcy filings; (c) bankruptcy law itself is fairly stable and predictable, although not so much so as to be boring; and (d) the bankruptcy bar is, in my experience, more civil and cordial than others I’ve encountered.

What’s the future of bankruptcy?

I hear cannons, not trumpets, but that’s a good thing. More specifically, I see a gradual up tick in filings, and see nothing in the general economy to make me think that middle-class debtors will start having an easier time of it economically.........

If you want to know more, you can find out a lot about the current state of bankruptcy filings and some projections for the future with a little online searching. A good place to start is the American Bankruptcy Institute’s website.

Stable, predictable, finite governing law. Because bankruptcy law is based entirely on federal law, it has finite boundaries regarding what practitioners need to know. The case law is fairly uniform across the country. There’s some interpretation issues arising from BAPCPA (it didn’t help that the law contradicts itself several times, and there’s essentially no legislative history), but they will be sorted out over time.

There’s still enough wiggle room in the law to demand our full set of lawyer skills on occasion, but in general, any competent attorney should be able to come up to speed on bankruptcy law quite quickly. I’m sure that taking a bankruptcy course in law school would have been helpful to me—had I done it. I think I took admiralty instead, an area of the law that’s in constant use in mid-Missouri.

Nature of practice. I find practicing bankruptcy law to be far less stressful than general civil litigation. Aside from the stability of the underlying law, things are generally more relaxed here. Sometimes there are opportunities for "win-win" compromises, while at other times, the law and the facts are sufficiently straightforward that there’s not much sense in arguing the matter.

I find that relations between the debtor’s bar, the creditor’s bar, and the trustees are almost always cordial and cooperative. Because the bar is fairly small, it’s vital to be forthright and honest with opposing counsel, because we deal with the same people over and over again, and word of someone’s sharp or shady practices travels quickly.

Practice and procedure in bankruptcy court is usually far more relaxed than in typical civil litigation, and the judges typically adopt a pragmatic, problem-solving approach to cases. In consumer cases, most disputes are straightforward and settle quickly. The ones that don’t settle are usually disposed of by short hearings where the evidence rules are relaxed.

Economics. BAPCPA’s due diligence and means testing requirements have forced debtors’ attorneys to raise their fees. In Missouri, I’m seeing Chapter 7 fees range from $800 to $1,200, and Chapter 13 fees run from $1,200 to $2,000. Most sane debtors’ attorneys charge a flat fee up front, because their clients are, by definition, in extremis financially.

An attorney starting a debtor’s bankruptcy practice would need a software package to prepare the petition and schedules. The packages start at around $400 and go up to more than double that amount. Many also offer means testing calculation modules, which I think would be quite useful. In my occasional forays into debtor work in the past, I filled out the forms on a typewriter or by manually entering the information directly into a word processing document. I think doing so brought my hourly rate down to around $10 per hour. Also, since all bankruptcy courts have gone to electronic filing and case access through Pacer, most practitioners have been pushed to a (more) paperless office.

A practice exclusively dedicated to debtors’ side bankruptcy would almost certainly require several staff personnel per lawyer, both for intake of the information required to fill out the schedules and for processing the case once it’s filed.

What about creditors’ side lawyers? That’s what I do. I used to do it for a firm that represented only mortgage lenders, and now I do it for the Missouri tax man (or woman—our Director is Trish Vincent). I believe that a new or transitioning solo would have a hard time starting such a practice from scratch, in part because the potential client pool is much smaller and usually pretty sophisticated regarding their needs. Also, creditors’ lawyers tend to represent their clients in non-bankruptcy matters as well, both in enforcing creditors’ rights and defending lender liability claims.

A number of debtors’ side lawyers have transitioned, at least in part, to a creditors’ side practice, where they can use their knowledge of bankruptcy law and procedure. The advantage of such a practice is that the clients tend to be solvent.

Conclusion. Bankruptcy practice combines low stress, a collegial practice atmosphere, and low barriers to entry (as a debtor’s lawyer), so it’s worth consideration for a new or transitioning solo practitioner.


Update (cont. from above) In my continuing support for new solos and those solos looking to expand and or change their practice areas, check out the documentary Maxed Out  which, in a review by the Washington Post, includes the following excerpt from the movie:

.....big lenders today have thrown out those fundamentals, (character, capacity and capital) instead using their own lack of character and capacity for greed to deplete customers' capital, preying on our collective sense of entitlement and reaping obscene profits in late fees and usurious interest. And as one pawnshop owner suggests, underneath those SUVs and flat-screen TVs, the working and middle class are being crushed to the financial breaking point.

And one more anecdotal piece:  I was recently in Florida and took a narrated cruise along the intracoastal waterways known as "Millionaire's Row" in Ft. Lauderdale.  The narration included the description of a 22,000 square foot home completed two months ago which was situated on one of the prized waterfront parcels known as 'the fingers': price tag $18.5 million.  Home Buyer - a foreclosure Attorney.

More info: Washington Post 3/14/07

Update: March 16, 2007 - Wall Street Journal On Line - Large law firms ramping up their bankruptcy departments!


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Chuck Newton

I agree that consumer bankruptcy is coming back. My argument from someone that has been in the trenches, is that some jurisdictions simply abuse debtor's attorneys with fee caps or unwritten bright lines. You can no more do a Chapter 13 profitably, or to your satisfaction, with the work that must now be done for $1,200 to $2,000. You will simply overwork the mule and it will fall dead from exhaustion. Do not get me wrong, there are enough attorneys out there that they could, and have in the past, obtained for much lower fees. There are attorneys that will do $250.00 divorces, so somebody will take the work. After all, in the Dark Ages they could always find someone who would take a little bit of nothing to pick up those who were dying from the plague. But, don't. It is simply not rewarding. It is almost impossible to limit your practice to various chapters any longer (if that ever was the case). Now you are guaranteed to have to spend an hour or two with everyone just to determine you cannot help them. The first thing you need to do before practicing is to find out what are the fee caps. And importantly, not just the amount, but, in a Chapter 13, how quickly do you get paid throught the Trustee, how much you can get upfront, what the fee requires of you, are you going to be let out as counsel at confirmation or 5 years from now. If you are not let out immediately what can you charge for all of the duties you are going to have to do in the 5 years you are going to have this client. And there is the liability issue. Mistakes now have very serious consequences you cannot overcome. Bankruptcy Courts use to employ equitable remedies to save idiots like me from mistakes I let my clients make. My point is that it can be a very rewarding field, but it very much depends on the fees allowed, and the duties required, in each jurisdiction. There are simply some districts you want to avoid. You also need to ask existing lawyers what they think of the Chapter 13 Trustee and the Judge. This is vey much a practice where your livelihood depends on your success. If you are not successful (and there are a lot of factors that you simply cannot control) you are not going to make money on that case. As is human nature, some Trustees are simply not cooperative and are abusive. Judges have opinons which might be helpful, but the real problem is can this judge effectively manage his or her docket to require the least amount of active court participation as possible. Ideology aside, there is nothing worse that a judge who will not coordinate his or her docket, or procedures, with the other judges and the Trustee's meetings.


Bankruptcy may be unavoidable for a lot of the companies in the mortgage industry and some of the individual owners.For these companies,planning options may be limited.But,in some cases,asset protection may be a way to plan for the bankruptcy filing or a way to avoid the necessity of a bankruptcy.
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