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Lesson to Bankruptcy Lawyers: Don’t Bribe Bankruptcy Trustees

Bankruptcy Trustees are court appointed temporary trustees of the bankruptcy estate in each personal bankruptcy case filed.  Their job is to represent the creditors.  If all of the assets are exempt, the trustee’s job is to certify this to the Bankruptcy Court and move on to the next case.  Many times there is an asset worth exploring – investment real estate that may have some equity, and, believe it or not, a lawsuit, or claim that could be brought on behalf of the debtor.  Such claims may be quite valuable.

What Claims Are Considered By Bankruptcy Trustees?

Claims can include anything from a personal injury lawsuit to a business lawsuit to an insurance claim.  Trustees are responsible for finding, liquidating and distributing the money from such claims.  When the Trustee discovers such a claim, the Trustee can allow the original attorney to continue to represent the debtor, or the trustee can engage an attorney to represent the debtor’s interest so as to gain control of the claim and it’s resolution.   Who do Trustees refer these cases to?

Tampa Florida Trustee Bribe Case

An attorney in Tampa, Florida had such a practice.  And, he wanted to develop it further.

In a criminal case just resolved in Florida a bankruptcy attorney was acquitted of bribing a bankruptcy trustee.  As we understand it, an attorney who saw a decline in bankruptcy filings tried to hand $3,000 in cash to a trustee, literally “under the table” of a restaurant he had invited the Trustee to dine at.  He suggested she “save it for a rainy day.”  The Trustee refused the money and then began working with the FBI to get the Florida attorney to complete the transaction.  The transaction was ultimately consummated and the attorney was charged with attempting to bribe the Trustee.

Apparently the defense was that the attorney was thanking the Trustee for recommending him to a family that had an unrelated personal injury case.  The case settled for $295,000 and the attorney’s contingent fee was  $78,000.  A three thousand fee to a referring attorney in a case of this magnitude would be considered insufficient in Massachusetts.  In any event, the Trustee was not an attorney and could not have accepted a fee no matter what.  It’s illegal.  Furthermore, when paying a fee to another attorney a check is written and a 1099 is filed with the IRS because this is deductible to the payer and reportable income to the receiver.  We wonder if the attorney who executed the physical transfer in a parking lot with 30 $100 bills rapped in newspaper was reporting this transaction to the IRS.

Proper Debtor Relationship With Bankruptcy Trustee

It should be clear from the above that, notwithstanding the acquittal, it is inappropriate for an attorney to seek business from another attorney, or a Trustee, by providing cash.  A Trustee would likely refer cases to attorneys that s/he sees practicing competently before them, with a reputation for success.  An attorney seeking such business would likely demonstrate his or her skills and keep any payments above board and within local laws and court rules.

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