South Carolina BAR Journal
SC Lawyer, November 2012, #5.
Navigating the Nexus between Bankruptcy and Common Pleas
South Carolina LawyerNovember 2012Navigating the Nexus between Bankruptcy and Common PleasBy Nathan A. EarleFederal bankruptcy questions have been a permanent feature of American debtor-creditor law since 1898. For lawyers representing creditors in state trial courts, the possibility that today's common pleas defendant might become tomorrow's bankruptcy debtor lends an element of uncertainty to even the most routine collection action. While it may not be possible to predict which defendants will file for bankruptcy, it is certain that many will do so.
The number of bankruptcies filed in the United States each year has risen sharply over the last three decades. A temporary lull followed the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, but filings have crept back to their pre-reform levels. More than 1.3 million cases were opened in the United States between July 1, 2011, and June 30, 2012, of which 8000 were filed in the District of South Carolina. See www.uscourts.gov/statistics. Eight thousand is a tiny number compared to the national total, but it represents roughly eight percent of the common pleas cases filed annually in South Carolina. See www.sccourts.org/trends. Since a state-court legal challenge often triggers a defendant's decision to file for bankruptcy, attorneys representing creditors in common pleas can expect to encounter bankruptcy on a regular basis.
An adverse party's bankruptcy usually brings a civil lawsuit to a screeching halt. By preparing clients for that possibility, and by being prepared themselves, litigators can protect their clients' interests and avoid potential sanctions. This article will suggest ways to avoid being blind-sided by a defendant's bankruptcy.
Bankruptcy considerations at the time of engagement
Before agreeing to represent a creditor in a collection matter- before drafting a demand letter or making a phone call-an attorney should take two bankruptcy-related precautions. First, the attorney should determine that no prospective defendant is a debtor in a bankruptcy case. Second, the attorney should discuss the scope of representation with the client to establish clear expectations about the attorney's role in the event that an adverse party seeks bankruptcy protection during the course of the representation.
Screen prospective defendants
Perhaps ironically, one of the first steps an attorney must take before filing a lawsuit in a state trial court involves federal bankruptcy law. In addition to checking for conflicts of interest and locating the defendant, the attorney must confirm that the debt in question was not previously discharged in bankruptcy and that...