A Chapter 7 bankruptcy allows consumers overburdened by credit card and medical debt to discharge the debt and get a fresh start in life. In exchange for wiping out the debt the court appoints a trustee who takes certain assets you own and sells them to pay your creditors. However, the trustee cannot take certain property you need for living, e.g. a house you live in with $150,000 equity, a car with $6,000 equity, household goods, computer, retirement benefits and items that do not exceed a certain value, such as wedding rings, watches, bicycles, milk cows, poultry, and life insurance, to mention a few. However, many debtors try to use cut rate attorneys to file bankruptcy, thinking that all lawyers are the same, hoping to save a few dollars in attorney’s fees. Unfortunately, there are lawyers out there who claim to be bankruptcy lawyers who do not know what they are doing and just charge a small fee and then abandon their clients. Here are some disasters I have witnessed in my 36 years of practicing law caused by clients’ lawyers whose cheap fee seemed too good to be true:
1. The client had a car accident lawsuit pending when he filed bankruptcy. His attorney told him it was exempt from the trustee. It was not. The trustee took it over and settled it for $240,000, none of which went to the client.
2. Client lost his house with $110,000 equity. While this would have been exempt under Arizona law, because the client had not lived in Arizona for 2 years, the trustee was allowed to use North Carolina law which only allowed a $20,000 exemption. His attorney did not know this.