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Should I hire the cheapest lawyer I can find for my bankruptcy…

Should I hire the cheapest lawyer I can find for my bankruptcy (or any other legal needs I have)?

13 May 2022

Probably not.  One reason is that it is likely the least expensive lawyer is not completing all the tasks necessary to ensure your best interests and you are taking risk you are unaware of.

A recent ruling provides information that will display the kind of task the cheapest lawyer, at least in a bankruptcy filing context, probably won’t do.  That recent ruling was in the case In re Luu where the chapter 7 trustee was successful in objecting to the debtor’s homestead exemption of $500,000.00 that covered the entire value of his $325,000 home.  2022 Bankr. LEXIS 1071 (decided April 18, 2022).  The reason the trustee was successful is that the debtor filed an insufficient declaration of homestead, specifically it was not signed under the penalty of perjury as required by statute.  2022 Bankr. LEXIS 1071 *9 (decided April 18, 2022).  Basically, the debtor used a faulty form, likely just relying on the drafter of the form, presumably his lawyer, that it was sufficient to support his full $500K exemption.  (Presumably because it was his lawyer that was the notary for the homestead declaration and the form was filed just days before the bankruptcy was filed.)

The judge permitted the debtor an exemption in the property of $125K (only) since the statute provides an “automatic” exemption of that amount even if no homestead is filed.

The result of this ruling to the debtor is that he only had $125K of his $325K home exempt, thus the trustee can liquidate the asset, his home, to satisfy his creditors of the rest of the value/money.  Presumably this could be a loss of approximately $200K, with other factors that could affect the actual amount, to the debtor.  And this is all from someone not putting enough time and effort into drafting a simple one-page form by comparing it to the current statute.

Now, you may be saying, boy, that lawyer made quite a mistake, and leave it at that.  But that is not the main lesson here.  What has happened is that the trustee in this case has shown that a bankruptcy lawyer must check the sufficiency of a debtor’s homestead declaration, if he doesn’t have that on his list already, and that is one more item and possible “trap for the unwary” (the judge used that phrase in describing it).  Id.  What I am telling you is that this type of task, and there are many, is likely to be missed, or not part of their regular practice, by many of the cheapest bankruptcy lawyers.  Now most of the time a homestead declaration is fine, so chances are, you’d be fine to not check it and file a bankruptcy relying on it.  But I said most of the time, not all the time, which I imagine you would want to know when your home is on the line.

The larger point here is that with most legal service purchases, and irrespective of the facts and situation in In re Luu, there are items that are likely not to be included with the lower price quote.  This doesn’t necessarily mean every purchase of legal services from an inexpensive attorney ends in disaster, but there is usually undisclosed extra risk of it.  Now, if not before, one of those added tasks in a bankruptcy is to check the sufficiency of the debtor’s homestead exemption, if relied upon.

This also can be an item for explanation, particularly in bankruptcy services, but it can apply to many other fields, of why what appears to be a simple task can be more expensive than it seems it should be.  This is because, like here with a bankruptcy filing, the attorney needs to perform an important task that doesn’t appear on the surface of the purchase.  In other words, it can be more expensive because there is more than meets the eye.