Bankruptcy

So, How About If I File a Personal Chapter 11 Bankruptcy? Part I

By Joseph McDaniel, Esq.

Well. Uh.

No.

I periodically talk to really smart people who have a new religion; the belief in an all-powerful, all-benevolent personal Chapter 11 Bankruptcy, which will permit an individual to manifest an all-powerful ability to force both secured creditors and unsecured creditors to negotiate!

Well, I have an actual religion.

AND The Religion of the Personal Chapter 11 With No Name is a false religion, because...where to begin?

In the first place, as you'd say if you were using the Roman system of mnemonics, there's this issue: who is your lawyer representing in your personal Chapter 11 Bankruptcy?

It sure ain't you!

What, you say, astonished?

Yeah, your lawyer, the guy you paid to represent you, answers to a higher authority: he represents the estate, not you, if you have filed a personal Chapter 11 case!

And you have a fiduciary duty to do the same thing, and put the interests of your creditors ahead of your own!

Does that sound like a job description that makes sense for you personally? If it involves, say, not feeding your children? For instance?

We'll talk more about this, but Nancy Rapoport, who is far smarter than I am, has said it far better than I could:

Representing a corporation can present numerous problems for Estate Counsel, but representing individual Debtors in chapter 11 is even trickier: "The complex fiduciary duties of a chapter 11 debtor-in-possession and its counsel can become even more confused when the debtor(s)-in-possession are individuals." Obviously, there is the metaphysical challenge of realizing that the human who hired you to file his chapter 11 petition is not your client in the bankruptcy case. Even though it's fairly easy, at least in theory, to understand that the president of a corporation or the managing partner of a partnership is not your client when you are representing the business entity itself, it stretches the bounds of legal fiction to comprehend the difference between the Bankruptcy Estate of an individual (your client) and the individual himself (not your client).

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So let's think about this first reason that it's an odd decision to file a personal Chapter 11: you ain't the client!

We'll back over this one with the '54 DeSoto in the future, but this is only the first reason that it may make little good sense to use this tool in the bankruptcy toolbox with great frequency.

And, by the way, does it make the slightest sense to consider dancing in and around an area of law that requires the use of the word "metaphysical"?

NOTHING IN THIS BANKRUPTCY BLOG CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY ATTORNEY WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on August 31, 2010 (boomark / email).