Can an attorney-debtor file a chapter 7 bankruptcy?

Asked over 1 year ago - Los Angeles, CA

law practice is incorporated; are professional rules involved? client trust account issues? does it matter what type of debts are to be discharged?

Attorney answers (6)

  1. Stuart Gregory Steingraber

    Contributor Level 18

    12

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    Answered . Attorneys can and do file Chapter 7 cases for themselves. Unless there are 11 USC §523 issues, it is unlikely that there are any relevant ethical undercurrents. As long as your Client funds account contains client funds exclusively, there should not be a problem there. All unsecured debts can be discharged absent any objections by creditors and/or adversary actions. If you make an accurate report of all assets and all debts, including your accounts receivables, you should be OK. When in doubt, disclose. I would not play games by contending that the law corporation holds the A/R and other lawyer property.

  2. Matthew Scott Berkus

    Contributor Level 20

    9

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    Answered . The challenge for attorneys filing BK is the accounting. In most respects, when an attorney files BK, it is no different than anyone else. However, you have a much more extensive disclosure for the statement of financial affairs (property held for another) and you really need to have your trust accounting above reproach. Not a penny can be commingled. That works both ways. You can't have client funds in your operating account, but you cannot shield "earned fees" by keeping them in your trust account.

    Beyond that, attorneys file bankruptcy like anyone else. You probably need extensive pre-bankruptcy planning to deal with your interest in the incorporated law practice and other assets and get everything organized before your file. Also, need to be aware that depending on the solvency of the client trust account, you may have clients as creditors. Also, although it is rare, the trustee may find a way to take over active cases (assuming the client consents).

  3. James Liu

    Contributor Level 14

    7

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    Answered . These concerns you have are popular reasons why many attorneys have retained my firm for debt settlement services. Because bankruptcy is a public record, many attorneys prefer not to give the impression to their colleagues, and possibly clients, that they have money troubles--especially when they are responsible for client trust accounts.

  4. Ray Choudhry

    Contributor Level 14

    8

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    Answered . 1. Personal debts is straight forward. An attorney is no different than anyone ese.
    2. Trust funds don't belong to the attorney.
    3. The really interesting issue, can the Trustee sell the attorney's stock to the other shareholders or, if the attorney is a sole shareholder, to someone else.
    If there are ethical issues, does bankruptcy law override them.

  5. Ivan Trahan

    Contributor Level 4

    5

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    Answered . Yep.

  6. Jeffrey Chiao Hsu

    Contributor Level 4

    3

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    Answered . Attorneys can and do file chapter 7. If the attorney is filing in a personal capacity, his or her ownership interest in the law business must be listed as an asset. A bankruptcy filing does not change the attorney's duties as a legal professional. And like all other BK cases, the types of debts matter and will have the same effect as any other personal chapter 7 case.

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