Attorney-Client Privilege in Bankruptcy Cases

19 Sep Attorney-Client Privilege in Bankruptcy Cases

The attorney-client privilege is a rule of evidence which prevents a client from being forced to reveal the content of confidential communications with his or her attorney. The scope of this evidentiary rule is normally determined by common law, and it varies from state to state, and from district to district in federal court cases, which includes bankruptcy cases.

The attorney-client privilege is not a rule of attorney ethics (although of course attorneys are obligated by ethics rules to keep client communications secret); rather, it is an evidentiary privilege which belongs solely to the client. Accordingly, the client decides when to invoke the privilege and when to waive it. The attorney is not the owner of the attorney-client privilege.

The attorney-client privilege applies in bankruptcy cases to any communication the client has with the attorney, when the communication was for the purpose of obtaining legal advice, and made with the expectation that the communication would be kept confidential. It applies to both verbal and written communication.

There are several poorly reasoned federal court cases, involving convoluted and unusual factual situations, which have held that the attorney-client privilege is limited in bankruptcy cases by the expectation that information conveyed to the attorney will not be kept confidential, but instead will be disclosed publicly in the client’s bankruptcy papers. Thus, the reasoning goes, the communication was not made with the required expectation of confidentiality, so the privilege is defeated. These cases involved debtors charged with bankruptcy crimes whose lawyers spontaneously disclosed otherwise priviliged documents to the U.S. attorney. It is not advisable for bankruptcy lawyers to rely on these cases for guidance until the caselaw develops further. The better approach is for bankruptcy lawyers to be aware of these cases, and to proceed as if the attorney-client privilege applies fully in bankruptcy as in other areas of law.

The attorney-client privilege is most frequently implicated by questions from the trustee at the 341(a) meeting, or during a Rule 2004 exam, or during litigation in bankruptcy court. For example, the trustee might ask if the debtor’s attorney advised the debtor to incur more debt before filing bankruptcy, or whether the attorney counseled the debtor to convert non-exempt assets into exempt assets, or whether the debtor discussed asset valuation with his or her attorney. Such questions fall squarely within the scope of the privilege, and the attorney should object to the question.

Once the objection has been made, the attorney should question the client on the record, or perhaps off the record, about whether he or she desires to answer the questions, notwithstanding the objection. Sometimes the answer will not be harmful to the client’s case. If the client says he or she will answer, the attorney ought to obtain the trustee’s agreement, on the record, that the privilege is waived for this question only, and not for the entire quantity of privileged information. This will prevent the trustee or other parties from arguing later that by answering one question, or several questions, the debtor waived the entire privilege.

This procedure should be followed for every question asked of the debtor which invades the privilege. Hopefully, the trustee or other questioner will grow tired of listening to the time consuming colloquy between attorney and client regarding the privilege, and move on to other areas of inquiry.

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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.
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