An unsettled, and even unsettling, question for bankruptcy lawyers and debtors alike is whether client worksheets can be examined by the other side in a contested bankruptcy court hearing. Does the attorney-client privilege protect such documents from being seen by hostile creditor attorneys?
A bankruptcy lawyer will often provide a client worksheet at a first consultation with a new bankruptcy client. The worksheet will typically ask the client to write down information about assets, how much these are worth, past property transfers, income history, and household living expenses. The lawyer reviews this worksheet with the debtor and uses that information to fill out the bankruptcy documents.
Next, the debtor signs these documents under oath in the lawyer’s office. The lawyer then files the bankruptcy documents in court, where they are available to be seen as public court filings.
The problem arises when a creditor or trustee claims that the debtor has been untruthful in the documents, by under-valuing an asset, concealing property or something similar. The creditor might ask the judge to order disclosure of the client worksheet to see if there are inconsistencies between the worksheet and the public bankruptcy documents.
In this event, the debtor’s attorney is sure to claim that the worksheet is immune from discovery because of attorney-client privilege. The creditor’s lawyer will counter that because the worksheet information was given for the purpose of disclosing it in public court documents, there could not have been any reasonable expectation that the worksheet information would remain secret.
Although courts have ruled both ways on this question, it is fair to say that the weight of authority favors the view that attorney-client privilege attaches to bankruptcy client worksheets.
A recent Florida bankruptcy court decision cataloged the cases on both sides of this question, and concluded that client worksheets given to the debtor’s bankruptcy lawyer were indeed protected by attorney-client privilege.
In In re Stickle, No. 14-19551-BKC-PGH (Feb. 2, 2016), the debtor filed chapter 13 and obtained confirmation of a partial repayment plan. Prior to the bankruptcy filing, the debtor had been sued in her capacity as trustee for some valuable real estate trusts. The trust’s beneficiaries sought a bankruptcy court order revoking confirmation of the debtor’s repayment plan. The motion was based upon alleged false statements in the debtor’s bankruptcy documents, allegedly concealing trust bank accounts for the purpose of hoodwinking the court into confirming a low-repayment chapter 13 plan.
To prove this allegation, the trust beneficiaries sought to use the debtor’s client worksheet, prepared for her lawyer, to impeach her sworn statements in her bankruptcy documents.
The Florida bankruptcy court ruled that the attorney-client privilege protected a bankruptcy client worksheet, as long as the debtor wrote down the information with the expectation that the information would remain confidential with her lawyer. The same reasoning applied to initial drafts of the bankruptcy documents prepared by the lawyer but not ultimately filed in court.
The court observed that bankruptcy client worksheets might well contain information that was not at all intended by the debtor to be disclosed in a public court filing. It disagreed with other court rulings creating a blanket exception to attorney-client privilege for bankruptcy client worksheets.
However, because the debtor had not proven her expectation of privacy in the client worksheet at issue, the court declined to enter an order, asking instead for further hearings. The court invited the debtor to submit factual evidence showing that she had prepared the worksheet with the expectation of using it to obtain legal advice.
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