The Importance of Due Dillenegnce
By David P. Leibowitz, Esq. Chief Legal Officer Officer, Upright, UpRight Law Law Chicago, Illinois, Illinois
When preparing your client’ s bankruptcy petition save your client and yourself a lot of trouble by“ looking under the hood”. By spending extra time and effort to really understand your client’ s situation up front, you can avoid problems and embarrassment.
Check the real estate records
Client knows the company to which he makes mortgage payments – the servicer. However, schedule the mortgagee of record too, whether it’ s MERS or anyone else. That means you should check the official deed records. And while you’ re there, you might find out other things which require your attention:
· Modification agreements
· Judgment liens
· Tax liens
· Releases of the mortgage you thought was there( more frequently than you might imagine)
· Unrecorded or defective mortgages( which a trustee might avoid)
· Even transfers by your debtor to someone else.
Know these things before you file, if only to avoid liens impairing the debtor’ s homestead exemption. Do this the first time around, not years later when the debtor wants to refinance.
Check the debtor’ s bank records
Schedules and statements of financial affairs must be accurate. How can you assure accuracy if you don’ t know the debtor’ s expenditures during the three months prior to filing? How can you address preferential payments to insiders without examining the bank statements within a year prior to filing? Avoid finding out this happened when the trustee asks the question at a 341 meeting.
Be sure that the balance you schedule on the petition is the balance in the bank as of the date of the petition. This information is available online. And it is required information under Bankruptcy Rule 4002( b)( 2)( B) anyway.
Other important information can be gleaned from the debtor’ s bank records:
· Did the debtor buy something recently which should be scheduled?
· Does the debtor make payments to purchase or repair an asset the debtor the debtor doesn’ t own or failed to mention to you?
· Does the debtor spend money regularly on something which is not budgeted?
· Does the debtor spend money for a storage facility which is not scheduled? What’ s in that storage facility anyway?
· Did the debtor transfer money from or to bank accounts other than those you know about? If so, you should ask questions about them too.
Check the local court dockets and national PACER
Is the debtor the plaintiff in a case she forgot to mention to you? Failure to schedule the case could lead to denial of discharge, loss of a potential exemption, judicial estoppel to pursue the claim or worse. Recently we observed a debtor who was a party to a significant personal injury case in multi-district district litigation in Texas. You never know. Check your local docket, state and federal and check national PACER. It can’ t hurt and it only takes a minute.
Check for unclaimed funds
You would be amazed how frequently your debtor has unclaimed funds with the state treasurer. That’ s another search that only takes a minute.
Read the Debtor’ s income tax returns
Is there income from a source you did not know about, such as dividends? Does the debtor have rental income from real estate you didn’ t know about? Does the debtor depreciate assets which were not scheduled? Did the debtor get an income tax refund last year? If so, does the debtor expect an income tax refund next year? If so, schedule that anticipated income tax refund and exempt it to the extent permissible under your state or federal exemption scheme. Did the prior year’ s refund go to an account you don’ t know about?
Check the Debtor’ s insurance
Did the debtor schedule particular assets in the homeowner’ s policy? What sort of valuation did the debtor attach to those assets? Does the debtor still have those assets? Does the debtor have any claims outstanding under any insurance policy? Does the debtor have some cash surrender value? Is it exempt?
30 CONSUMER BANKRUPTCY JOURNAL Fall 2016 National Association of Consumer Bankruptcy Attorneys