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Accuracy of Pleadings


A study by the OUST in which cases were randomly audited disclosed that about 85% of the cases filed contained “material” errors.  And a pilot study in which trustees were requested to visit the homes of approximately 50% of the debtors on each rotation disclosed that 70% of the homes visited had “materially” under reported assets.  In this study 35% of the cases on each calendar became asset cases. As a result, trustees have been asked to “raise the bar” on proper preparation of pleadings.  You should also communicate with your clients that agents of the trustee may be making visits to their homes prior to the 341 hearing with digital recording equipment.  If you would like to be present at these visits, please contact my office.  Otherwise, we will assume blanket permission to contact your clients directly to arrange these visits.


Finally, if you are not already aware the OUST has adopted a prosecutorial attitude toward debtors.  As a result, the oath and statements they make at 341 hearings are very important.  If their pleadings contain errors and they answer the oath in the affirmative, a prima facie case of a bankruptcy crime has occurred.  This makes a prosecutors job very easy.  Don’t let one of your clients become a statistic on a OUST press release. Remember also that a "Material Error" can result in dismissal without the ability to refile.


The Quality of Debtor Representation


Review the pleadings with your clients prior to signing.  Make sure all questions have been answered.  Key problem areas include:


            Income is under reported.

            Tax withholdings are too high.

            No dates or purposes on debts.

Incorrect entries regarding payments made in the last 90 days.  Especially if the debtor received a tax refund pre-filing.

            Not disclosing if there is business debt on the petition page.


We understand that clients often do not supply the information.  However, you have an obligation to ask.  The presumption of the UST Office is that you have not spoken to your client if any portion of the schedules or statements are left blank.


The Attorney must meet with the client pre-filing and advise them regarding the appropriate chapter to file and the consequences of filing.  In connection with this, the attorney must ensure in a joint filing that both spouses are actually aware of the filing.  Don’t send the pleadings home to sign unless you have previously met with the absent spouse.



The fees charged must be reasonable and the pleadings must reflect sufficient attention to detail to show that the fee has been earned. $800 to $900 is considered a reasonable fee in the typical case.  Under the new law $950 to $1,400 may be considered reasonable.  The information regarding fees on the statement of financial affairs should match the information on the disclosure of compensation.  If you sue your client for fees and they complain to the UST Office, you will likely be the subject of a sanctions motion for violating the discharge stay provisions.  The local UST Office has determined to step back from mandatory implementation of Bethea.  However, Judge Thurman has determined that it is applicable in any case that comes before him.


Another area of concern is sloppy or improperly prepared pleadings.  This includes, but is not limited to (a) pleadings that fail to clearly distinguish business debt,1 (b) failure to disclose prior filings, (c) missing dates or descriptions of schedule D, E, & F; and (d) pleadings that are not internally consistent.  The following are common inconsistency errors:


A business alias or equipment, but no entry on question 18 of                         the statement of affairs.

Question 1 of the statement of affairs not matching Schedule I.

Question 2 of the statement of affairs not matching questions                         4, 10, 16, schedule B, or schedule I.

Question 4a of the statements of affairs not matching                         question 4b.

Question 7 of the statement of affairs not matching schedule J.

Question 9 of the statement of affairs not matching the 'Fee                         Disclosure statement'.

Question 12 of the statement of affairs not matching                         schedule B.

Business equipment, but no entry on question 18 of the                         statement of affairs.

Schedule C values or property not matching schedule A or B.

Schedule D values or property not matching schedule A or B.

The summary page not matching the schedule totals.

Schedule D debts appearing on schedule F.

Business debt on D, E, or F and no entry on question 18 of                         the statement of affairs.

Schedule G doesn’t match schedule I or J.

Schedule H debt not listed on D or F.

Statement of Intent doesn’t match schedule D.

Surrendered debt on schedule J.


A few other items to be aware of: (1) do not sign pleadings for your client, (2) do not electronically file pleadings that have not been previously signed by the client, (3) have the client date the pleadings at the time of signing, (4) do not have clients sign blank forms, (5) do not forge client signatures, (6) don’t file cases where there is no intent to complete the filing, and (7) do not take fees in installment cases until the court filing fee has been paid in full.


The following items appeared on a list of General Civil Enforcement Areas under the heading of Attorney Misconduct: (1) Excessive fees, (2) Unbundled services, (3) Use of appearance counsel/substitute counsel, (4) Poor lawyering, (5) Abandonment of clients, (6) False statements, (7)  Poorly prepared documents, (8) Forgery/unsigned documents, and (9) Bad legal advice.


707b Violations (Substantial Abuse)


If your client has the following characteristics they will be carefully scrutinized to see if they should be dismissed or converted to a chapter 13:


            Single individual with income of 50,000 or more.

            Married with joint income of 75,000 or more.

            75,000 or more of unsecured debt.

            Professional persons.

            More than 50% of the debt is consumer debt.

            $200.00 or more of excess income.


It is the position of the UST Office in Denver that a legal right exists to require disclosure of the income of the spouse (or any other adult in the household) as well as their expenses to insure that it is not abuse for a client to file chapter 7.  Partner income is applied against half the joint overhead.  Excess partner income beyond this is ignored.  If after paying half of the joint overhead a client has excess income sufficient to return more than 20% to unsecured creditors over a three year period it will be considered abuse for them to file a Chapter 7.


If you have a case like this, plan on bringing to the first meeting of creditors the following documentation:


            2 years of tax returns.

            2 years of W2 and 1099 information.

            3 months of pay stubs

            6 months of bank statements

            6 months of credit card statements

            Last quarter retirement statement


When determining budget expenses do not include in the budget expenses for property being surrendered or that would be discharged in a 7 (such a credit card debt).  Remember also that 401k deductions or loan repayments will be factored out as well, although this may change under the new law.


The Trustees Office in Denver is concerned with under reporting of income.  Based upon prior research a high percentage of cases include substantial unreported income.  As a result, all debtors are being asked to bring the following documents to the 341 hearing:


Statements for each bank account, investment account, mutual fund, or brokerage account that include the filing date balance.

            The most recent pay stub.

            The most recently filed complete federal and state tax returns.


The following items appeared on a list of General Civil Enforcement Areas under the heading of Debtor Misconduct: (1) Substantial abuse, (2) No statements and/or schedules, nonpayment of fees, (3) Failure to appear at the 341 meeting, (4) Incomplete and/or inaccurate schedules and/or statements, (5) Concealment of assets, (6) Undisclosed transfer of assets, (7) Asset undervaluation, (8) False statements, (9) Lack of books and records, (10) Inability to explain loss of assets, (11) Credit card bust outs, (12) Serial/multiple filings, and (13) Identity issues, including identity theft.


Small Asset Cases


Through research the OUST has determined that a greater return is made to creditors in small asset cases ($1,000 to $10,000) than in larger cases.  As a result, trustees are being mandated to handle cases under the traditional $2,000 to $5,000 range.  Trustees are also being strongly encouraged to be more exacting in those cases where there appear to be assets.  Please let your clients know that in any case where there is a tax return, car, or other asset that will bring money to the estate, they will also be asked to turn over “all” cash on hand on the date of filing (even if it is a nominal amount), and may be asked to turn over “all” non-exempt personal assets (even if they could not be sold for much).  The idea is that even a small amount of funds will increase the percentage return to unsecured creditors.  And lest you think that a large amount of debt will persuade trustees not to liquidate property, be aware that most creditors do not file claims and that the OUST calculations are based upon percentage return to creditors who file claims, not total creditors.  Trustees are being encouraged to obtain storage units to hold debtor personal property and to hold their own sales on a periodic basis.




The US Trustees office is concerned Creditor and Petition Preparer Misconduct.  If you become aware of the following to report them to the UST Office:


            Petition Preparer Misconduct

                        Non compliance with 110 disclosures

                        Over charging

                        Unfair and deceptive practices, including the                                     unauthorized practice of law

                        Use of attorneys as fronts

            Creditor Misconduct

                        Automatic stay abuse

                        Violation of injunction or other equitable orders

                        False or inaccurate claims

                        Misuse of the reaffirmation or redemption process

                        Unauthorized use of official court language/fake                                     pleadings in written solicitations


1An easy way to solve this is to add “(bus)” in the description area.