Bankruptcy and Conflicts of Interest

The bankruptcy judge in In re Muscle Improvement Inc. (Bkrtcy. C.D. Cal 2010) 437 B.R. 389, 392-393 stated:  “Conflict of interest law is complex and subtle. While a careful lawyer should not have difficulty in complying with most of the applicable rules of professional conduct, even sophisticated counsel trying to comply with the rules regarding conflict of interest must make difficult and uncertain decisions.”

The Attorney You Use

When a debtor engages an attorney for bankruptcy, s/he should ask if the attorney has any conflicts of interests as part of his/her diligence.  For instance, an attorney who works for a debtor may not usually be retained by a creditor at the same time.

In California Bar Journal, January 2011, Ellen R. Peck discussed In re Muscle Improvement Inc. (Bkrtcy. C.D. Cal 2010) 437 B.R. 389, 392-393.  In the case, a bankruptcy lawyer was disqualified from representing a creditor because the attorney previously advised the debtors.  The attorney received confidential information from the debtors but was not retained by the debtors.  The attorney reviewed financial documents from the debtors, and charged the debtors a consultation fee.  The meeting with the debtors created an attorney-client relationship.

In California, a lawyer shall not, without the informed written consent of the client or former client, accept employment adverse to the client or former client where, by reason of the representation of the client or former client, the attorney obtains confidential information material.  A relationship with an attorney exists before actual employment when the client consults with the attorney on whether the attorney will take the case.  It does not matter if the consultation is free.

The duty to keep client confidences stays with the attorney even though information later becomes public when filed with the court.  See Jessen v. Hartford Casualty Ins. Co. (2003) 111 Cal.App.4th 698, 708.

Rinne Legal helps people with bankruptcies, estate planning, and loan modifications in Contra Costa County, Sacramento County and Solano County. Rinne Legal has offices in Walnut Creek, Fairfield, Sacramento and Elk Grove. Contact Rinne Legal for a free consultation.  These blog posts are for informational purposes only and not intended nor should be construed as legal advice.  These blog posts may be considered attorney advertising in some states. Prior results described on blog posts do not guarantee similar outcomes in future cases.  There is no intent to create an attorney-client privilege or relationship with anyone accessing information on this blog.  Authors posting on this blog are not obligated to reply to any emails seeking legal advice.  The information contained on this blog is not intended to be a solicitation.