Friday, December 02, 2022

Counsel's Retention of "Wet Signatures" Overcomes Debtor's "Faulty" Memory

Sometimes debtors get buyer's regret after filing a bankruptcy petition.  However, once a bankruptcy petition is filed, it remains on the debtor's credit for ten years. One debtor sought to throw his attorney under the bus by claiming that the bankruptcy filing had never been authorized. Fortunately the debtor's attorney had retained his client's wet signatures and text messages which protected him from the Court's Order to Show Cause. In re Wilson, 2022 Bankr. LEXIS 3378 (Bankr. D. N.J. 11/30/22).  

What Happened

On December 3, 2019, attorney Fred Braverman filed a chapter 13 petition for Charlie Wilson. The case was later dismissed on February 27, 2020 after the debtor failed to prosecute the case.  Several years later, the Debtor was attempting to refinance his mortgage and found out that the bankruptcy filing on his credit report impacted his credit score. After asking his attorney to remove the bankruptcy from the public record, on August 26, 2022, the Debtor wrote a letter to the Court. In the letter, the Debtor alleged that he had told his attorney not to file the bankruptcy case and "was not aware that Atty. Braverman proceeding to file the Chap. 13 case anyway . . . and without our knowledge."

The Court was rightfully concerned that a petition might have been filed without the client's authority and issued an Order to Show Cause. Both Attorney Braverman and the Chapter 13 trustee filed responses to the Order to Show Cause. 

The Court's Findings

The Court found that the Clerk had sent at least five notices to the Debtor and that none of them had been returned as undeliverable.  The Chapter 13 trustee stated that she had mailed a "welcome letter" advising the debtor of the materials needed for the 341 meeting.  The Court found that Attorney Braverman's response "is more damning." Attorney Braverman protected himself by producing:

copies of the wet ink signature pages of the bankruptcy petition

a screen shot of a text message urging him to file the bankruptcy petition to avoid a wage garnishment

a screen shot of a text message thanking him for filing the bankruptcy petition

a hand-written note from the debtor providing information to contact his payroll office

a screen shot of a text message on December 27, 2019 indicating that he was having second thoughts about proceeding with the bankruptcy case.

Attorney Braverman also testified as to his phone conversations with the Debtor.

The Court's Ruling

The Court noted that there was a split of opinion as to whether a bankruptcy petition, once filed, can be removed from the record, even if it was filed without permission. The Court noted that this would be an extraordinary remedy. The Court went on to state that "Mr. Wilson's regret, three years after the fact, of the filing the bankruptcy case is not the kind of circumstance that merits an extraordinary remedy." It also stated:

It is clear that Mr. Wilson authorized this bankruptcy filing. He sent messages to Mr. Braverman urging him to file the case as soon as possible to stop garnishment of his wages. Mr. Braverman produced a copy of the wet-ink signature page of the petition.  If authorization exists courts usually do not expunge the petition.  Messages from Mr. Wilson regarding changing his mind about bankruptcy were not sent until the 27th of December, 24 days after the bankruptcy commenced and after numerous notices regarding the bankruptcy had been served on Mr. Wilson.

Nothing in the Bankruptcy Code allows the court to relieve a filer's remorse.

Opinion, pp. 17-18 (cleaned up).  

Why It's Important

Too often, opinions feature attorneys behaving badly. This could have been one of those cases if Attorney Braverman had failed to respond to the Order to Show Cause or if he had failed to preserve the wet signatures.  One case cited by the Court stated that "failure to produce the wet signature on a petition leads to the conclusive presumption that the signature does not exist." In re T.H., 529 B.R. 112, 120 (Bankr. E.D. Va. 2015). Attorney Braverman also protected himself by preserving his text messages with the debtor.  In this case, the record reflects that Attorney Fred Braverman not only complied with his responsibilities under the Bankruptcy Code but practiced good defensive law as well. Other attorneys would do well to follow his example.   

I am a little disappointed that the Court let the debtor get off so easily. The debtor's representations to the court were not just erroneous but appear to be fraudulent as well. Even if the Court did not find that sanctions were appropriate it should have cautioned the debtor about the seriousness of  lying to a federal bankruptcy judge. However, even without such an admonishment, if Mr. Wilson files bankruptcy in the future, there is a record of his attempt to mislead the court.  

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