Recently, a class action lawsuit was filed in a Texas Bankruptcy Court over the proper disclosure of fees. This may seem like a rather mundane issue to be discussing on this blog, but the truth about where these fees are going and who they are going to is going to be analyzed in the future by many bankruptcy courts around the nation.
What does it mean to the average guy on the street? Well, it’s about transparency in our dealings with our lenders. Sure, it’s easy to say I borrowed the money and now I have to pay it back. Outside the bankruptcy court, that logic is fine. Inside the bankruptcy court, the question is whether a company can operate on the outside of a Bankruptcy Case without disclosing its involvement to the Bankruptcy Court and whether it is receiving a portion of the attorney’s fee being requested.
I know that sounds long and complicated, and quite frankly, it is. But, this case has some merit and momentum behind it. This case is being closely watched by consumer bankruptcy attorneys everywhere. But, I am willing to bet that the case is being watched even closer by creditor attorneys. There is an upward trend in Bankruptcy Courts around the nation, and that trend is that malpractice cases are increasing.
In my humble opinion, malpractice cases are increasing in the bankruptcy courts because many individuals and businesses wind up there when they are the victims of lawyer malpractice and the legal malpractice claim or cause of action belongs to their bankruptcy estate.
In the Texas case referenced above, the debtor is accusing a company of failing to disclose the attorney’s fees and costs which they have been secretly been receiving. The bankruptcy court requires full disclosure of attorney’s fees and costs. There is no side-stepping on this issue. The failure to properly disclose fees and costs could result in disgorgement, sanctions or punitive damages.
The reason that I said that the Texas case will be watch closely by creditors’ attorneys is because I believe that many of these firms are puppets to big business. They operate outside of the bankruptcy laws and kick back fees for work being performed. I truly hope this case puts an end to an illegal practice in the bankruptcy courts.
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