Attorney-Client Privilege in a Chapter 7 Bankruptcy

You’ve doubtless heard the term “attorney-client privilege” if you’ve ever watched any TV crime show.  We’ll probably never know what O. J. Simpson told his lawyer Johnnie Cochran (R.I.P) about the events in the wee hours of June 13, 1994.  If O. J. confessed the murders to Mr. Cochran, that confession would have been considered privileged and confidential.

For a communication to be considered privileged, it must be in the pursuit of legal advice and be made in a confidential manner.  The privilege belongs to the client, and it can be waived if the client so chooses.  However, it can also be voided if the client is careless in sharing the information with other parties, which is easy to do in this age of email and social media.  Note particularly that pure business advice, even if rendered by an attorney, does not fall under the definition of privilege.  Specifically with respect to bankruptcy cases, the courts have held in some instances that the bankruptcy trustee can override privilege in the interests of protecting the estate of the debtor on behalf of the creditors.  From my experience as an Austin bankruptcy attorney, I have found that in this district the trustees generally prevail when this issue arises.

If you are considering a Chapter 7 filing, the important point here is not that you need to learn the intricacies of the judicial system, it’s just that you need a qualified attorney to guide you through them.  And, of utmost importance is your disclosing fully to me everything about your financial circumstances so I can advise you appropriately.  As I have written in earlier posts on this blog, there are detailed calculations that have to be made to determine if, and often when, you might be deserving of Chapter 7 relief.  Individuals with erratic income streams, such as the self-employed or commissioned salespersons, may qualify one month and not the next, or vice versa.  

What you tell me in this context may well be subject to discovery by the trustee if he or she requires this information to discharge your case.  Keep in mind that some trustees receive only nominal fees to take on a case but earn most of their income based on a percentage of the value recovered for creditors.  They are entitled to see the full picture.  And, let’s say you file for Chapter 7 and then while your case is pending you win the lottery.  If you tell me that, I am required to divulge it to the trustee.  Frankly, you should tell me anyway because the trustee is probably going to find out.  You really can’t hide behind any kind of privilege in a situation like that, and it doesn’t help you if I get surprised on matters of that nature.

If you’ve made past decisions concerning assets that in hindsight now appear rather unwise, we should discuss them.  I recently had a situation that fell into that category, and I was able to suggest to the debtor a course of action that resolved that before filing and allowed that case to proceed to the desired conclusions.

In another case, a lender on a vehicle had failed to record its lien properly -- an expensive documentation error.  The Trustee and I discussed this, and he took possession of the vehicle, leaving the lender holding the bag.  My client was indifferent – his asset was either going to the Trustee or to the lienholder – and he was even helpful in making it readily available to the recovery service.  The notion of privilege did nothing to protect the lender who was too careless.

Certainly I am aware of your privacy and the general confidentiality of your affairs, and I want you always to be completely comfortable in disclosing your matters to me.  However, I just want you to know that in this District the courts generally try to create a fair balance between the interests of the bankruptcy estate and the debtor and have given trustees plenty of latitude to achieve that balance. If you are deserving of a Chapter 7 fresh start based on ALL the facts, my goal is to get you that result.  The rules and customs in bankruptcy are a bit different than in the L.A. courtroom where O.J. was tried on criminal charges.