Decided September 4, 2018 by a bankruptcy court in Oklahoma in the Tenth Circuit

In this case, the judge ruled that sloppy disclosures associated with a bifurcated Chapter 7 were sanctionable in this case, for two reasons.

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First, the attorney had not disclosed the existence of a third-party lender that had fronted him 70% of the value of the projected payments:

[The attorney] indicated in each Disclosure of Compensation that he had not shared his fee with any other person. Both in his written brief and testimony, [the attorney] insisted on his understanding that he was not sharing fees because “it was his receivable” that he could dispose of or sell in any way he wanted, and that [the financing company] was simply a collection agency. … What concerns the Court is [the attorney]’s rather brazen position, with no citation to authority, that collection of a fee from his client that is split between himself and [the financing company] does not constitute sufficient “sharing of compensation” that it should—at a minimum —be disclosed to the Court.

And second, the attorney in this case had selected “Debtor” (rather than “Other”) on his various Form 2030s when answering the question “The source of compensation to be paid to me is.”

Of additional concern to the Court is that [the attorney] indicated that the source of the compensation to be paid to him was the debtor, even though Bankruptcy Form 2030 presented him with another option.

Accordingly, for the 14 bifurcated Chapter 7s, the court ended up ordering the disgorgement of all fees paid, and cancellation of the postpetition agreements.

The moral of this case is to disclose as much as possible! Also, triple-check your Form 2030s and Schedule Js.

Aggressive USTs have used this case to justify harsh sanctions for even small disclosure issues. So make sure your i’s are dotted and your t’s are crossed.

The court did not rule on the validity of bifurcated Chapter 7s in this case.

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