The Legal Play Podcast

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Bankruptcy is something the public hears about often. Most of the time, the news and media focus on big corporations or well-known wealthy individuals. Sometimes it may seem that certain corporations or individuals survive, and maybe even thrive after bankruptcy. It is not true that people or businesses can get richer through bankruptcy. Filing bankruptcy is, in fact, a serious issue.

Determining whether filing bankruptcy is the right move for you or your business is critical before moving forward. Bankruptcy is intended to be an option provided by the government to help people and businesses that are struggling to overcome large debt, but depending on the specific circumstances, bankruptcy is not for everyone.

From the moment you are even considering bankruptcy for yourself or your business, it is strongly suggested to make an appointment with a bankruptcy attorney for advisement of the right steps to take, when to take them, and what to expect.

Why Bankruptcy Exists

Bankruptcy is designed for people and businesses that are in debt to too many creditors and just cannot pay everybody. The underlying policy for bankruptcy is helping the debtor settle some, if not all of their debt in an organized fashion, attempting to ensure that most of the creditors with valid claims get something back.

For example, let’s say a debtor has several creditors. Some of these creditors could be suppliers or vendors, government taxing authorities, contract laborers or service individuals. It is not uncommon to have outstanding debt with multiple entities simply because cash-flow was not good enough to pay off everyone and the debtor prioritized some over others for whatever reason. Without bankruptcy, all creditors would likely be pursuing the debtor with their own resources and remedies, and the debtor would have to deal with each of them separately. This is a daunting task. And in some cases, the most aggressive creditors aren’t the ones that have superior right to be first-in-line to be repaid. Preferential treatment of one creditor over the other can have some long-lasting negative consequences. Instead, bankruptcy court offers an organized manner whereby the debtor and all the creditors must join together to figure things out.

The Potential Upside of Declaring Bankruptcy

While declaring bankruptcy for yourself or your business is not for everyone, there are some reasons why people tend to think it has an upside:

• Automatic stay. In bankruptcy there is something called an automatic stay. When a debtor files bankruptcy, the court will bar creditors from any further collection actions until the court eventually approves them doing so.
• Some people see a big financial mogul in the public eye that has filed bankruptcy and appears to still be doing really well with both money and even high public opinion. Individuals wonder why that person is still rich and having their image on the front of magazine covers. As glorified as some famous people make bankruptcy seem, the main thing to note is that bankruptcy is a cumbersome, expensive and stressful process. A lot of personal and financial information is shared with the court and the parties involved. And, ultimately, the debtor’s creditors still get paid something. So no matter how the media may spin it, no debtor in bankruptcy gets off scot-free.
• Immunity Toward Future Wages. When a person declares bankruptcy, it protects that person’s future wages. In other words, if I am quite talented and have the potential to earn a good wage, but I have current debts I can’t pay, I can file bankruptcy and use my current assets to pay creditors. Once my bankruptcy case is discharged, I can then go on to earn more money without having to promise those future wages to any of the previous creditors. This aspect of bankruptcy is important, because without it, productive members of society would not have incentive to continue working because their efforts would be just for the purpose of paying their creditors without having anything in it for themselves.

Can I get Rich by Filing Bankruptcy?

There is not a scenario where an individual or business can get rich by filing for bankruptcy. The system just does not work that way. A person or business may already be rich and have lots of assets, then file bankruptcy and not be forced to pay all their debtors and creditors. Add to that certain state exemptions, and the debtor may still have quite a bit leftover, such as their 40-acre ranch pursuant to the Texas homestead exemption.

While there can be good outcomes for a debtor in bankruptcy, there is no way to “game the system” so to speak. There are processes and protections in place where people are appointed to oversee, if not take control of, your assets to ensure the debtor is not doing something backwards or lying about the assets they have. For example, in a Chapter 7 complete liquidation case, a trustee is appointed. The trustee will do one of two things:

1. Make sure all the paperwork, disclosures and procedures are followed properly
2. See if there is some asset the trustee can take and sell to give the money to the creditors in the process

The bankruptcy court and the trustee will be on the lookout for recent “debts” repaid to creditors who may be a related party. For example, if on Monday I owe the bank $10,000 and I owe my mom $10,000, and then on Tuesday I get $10,000 and give it to my mom. Then on Wednesday, I file bankruptcy. The bank may say it is not fair, or legal, to show preference to my mom. That allows a trustee to sue my mom as the recipient of a fraudulent conveyance and make her give the money back so it can be divided up amongst my creditors according to the rights they had before the transfer was made.

Is Bankruptcy Right for Me and My Business?

In an effort to be transparent, debtors are often advised not to make any bankruptcy decisions on their own. It is much more prudent to speak to a bankruptcy attorney first to ensure it is in your best interest to file bankruptcy and determine under which chapter of bankruptcy to file.

If you are a person or business that is so far in debt that you may never get out (something to the tune of $100 million in debt), then bankruptcy may be right for you. If a person with this type of debt is being hounded by creditors, it can make it difficult for them to even get a bank account.

There may also be entities that cannot pay all their debts because of something that happened in the past. A good example of this can be office buildings. In most cases, these structures were worth more before the pandemic than they are now. Many of them have mortgages from the days when those buildings were more expensive, only now the owner does not have the same occupancy and thereby not enough cash flow. However, the building still exists and does not have to be built again, so it can still charge some rent and pay some mortgage. Certain mortgage lenders may be unwilling to work with the debtor. Filing bankruptcy may be the remedy. A court-approved bankruptcy plan that restructures this debt may give the creditors some continuing cash flow rather than allowing foreclosure on the real estate, which can disrupt the market and the lives of the people who work in the building.

On the other hand, there are other situations in which bankruptcy may not be recommended.

If you or your business have a limited number of creditors that you are able to work with, it may be wise to try to settle outside of bankruptcy. Bankruptcy can be long and cumbersome and potentially more expensive that simply renegotiating with existing creditors.

Someone who owes a bunch of people a little bit of money, may have at least some creditors that do not try to collect. It is possible that some of those debts may even be unenforceable or released due to the statute of limitations. It would not be advantageous for a person to file bankruptcy the month before the statute of limitations runs out on their $200,000 IRS debt.

Because every situation is different, it is best to seek professional legal counsel from an experienced bankruptcy attorney to determine the best path forward before taking action.

It is worth noting that there are more than a few types of debts that do not get discharged in bankruptcy, including:

• Employment Trust fund taxes
• Excise taxes
• Sales taxes
• Child support
• Alimony
• Certain intentional acts (such as libel and slander)

Abuse of Bankruptcy

If you are filing bankruptcy just to buy time, it is probably not the best strategy to file as it turns over a great deal of authority to the courts and trustees to do things to you or your business that would not have happened otherwise. While it may stop a foreclosure for a while, unless you can pay the debt in that ninety-day window, it is likely a mistake. It is also considered bankruptcy abuse to file simply for the purpose of invoking the automatic stay.

If you are wondering whether bankruptcy is right for you and your business, know that it is a complicated area of law. It is very strategic in terms of when you should file, what you should do beforehand, and all the processes that come during and after bankruptcy. Proceed with caution and make sure you are doing what is in your best interest by making an appointment with a reputable bankruptcy attorney today.

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Making a will is one of the most important things you can do to protect your assets, but what happens if your heirs can’t find the original will? The short answer is that things could get problematic quickly. This is primarily because copies do not carry the same weight as the original in the eyes of estate law.

Before you make a will, it is vital to understand how to ensure it is legal, how to store the original, and what to do if you decide you want to revoke the will and begin anew. Without knowledge of these processes, you could risk your assets being distributed contrary to your final wishes.

What Happens When You Do Not Have the Original Will?

Probate courts need the original will because along with it comes the authenticity of the document. Without the original, there is a presumption that comes into play. It is not as simple as saying that your spouse or parent died, and you cannot find the original, but you have a copy of the will. The law will presume that without an original will, the testator, or person who made the will, destroyed it with the intent to revoke.

Some of the top reasons there is no original will to present include:

• Its location is unknown
• It is misplaced during a renovation or move
• It is destroyed in a natural disaster such as a fire or flood

That said, there are some instances in which it may be possible to overcome that presumption. For example, if the will was partially destroyed in a natural disaster, but some parts are still readable, and you have witnesses (often attorneys) who can attest that the will was only recently drawn up. Another way to overcome the presumption is if a spouse’s mirror-image copy still exists that was drawn up at the same time, and no legal heirs contest using a copy of the testator’s will in court.

Won’t My Lawyer Have Records of My Will?

Many individuals make the mistake of thinking that when an original will cannot be found, their attorney will have copies.

Years ago, lawyers often kept clients’ wills in a safety deposit box or a fireproof safe. The problem is that the lawyers then had the obligation to keep track of it for thirty to forty years or more. Consider what might occur if something happens to the lawyer during that time. Consider if the heirs would even know who the testator’s lawyer was at the time it was drawn up and if they would know how to reach them. If lawyers do have a copy, it is still just a copy. However, if an original will cannot be produced and no one is contesting it, then there may not be a reason to anticipate any problems.

Copies Require Notice

If the copy looks good, the circumstances for not having the original are not unusual and there are no obvious red flags or suspicions, everything may be fine. Yet, the caveat to this is that there must still be a notice put out to all the heirs that would potentially let them know the copy has been entered for probate and there is an application to probate using the copy. The heirs will need to be asked if they have any reason to protest. If the heirs sign waivers of notice saying they will not contest, it can be filed with the court.

Issues can occur if you cannot locate the heirs to notify them. You may have to hunt to find last known addresses, try to contact people who know where they are, and then issue a citation of personal service. If service of process fails, the person applying to probate the will may have to get a court-appointed ad litem to represent the heirs during any proceedings (see our previous blog and podcast about attorneys ad litem).

Copy of Will Scenario

Let us consider a scenario in which a person passed away. A woman, a former neighbor of the deceased, submitted a copy of the decedent’s 30-year-old will. The will left certain assets to the woman. The woman was not related to the deceased and hadn’t seen them in years. The deceased’s estate was close to four million dollars.

There were roughly 60 heirs that stood to inherit something if that copy of the will was invalidated. Because the copy of the will the woman submitted for probate was thirty years old, the woman was advised that she would end up losing her application to probate the copy and to settle.

The deceased’s estate paid the woman’s legal bills because she had done work to initiate probate proceedings. However, in the end, the deceased’s heirs inherited approximately two million dollars.

The lesson in this case is that if you have a legal will and you want there to be a specific distribution of assets upon your death, make sure you have an original that can be accessed by someone you trust. It can be a worst-case scenario when the will you actually wanted to be followed is thrown out by the court because there is no original and there is at least one heir who protests its probate.

Imagine this scenario. A mother passes away. The son and daughter are the heirs at law. The daughter has only a copy of the will in which her mother gives everything to her, and she submits it for probate. The brother could either sign the waiver notice, or he may contest the copy was something presumed to be destroyed with intent to revoke. In the latter case, the son would likely get half of his mother’s estate.

What To Know About Revoking a Will

An individual does have the power to revoke all previous existing wills and begin a new one. This is frequently done if, for example, children or grandchildren enter the picture after the first will was drawn up. The tricky part can be ensuring that the right people know about this change.

Consider this. A person had a will drafted two years ago and ensured that her daughter, cousin, lawyer, etc. have copies of that version. However, the person intends to now revoke it. What should they do?

Contrary to popular belief, tearing up the original will is a mistake. By doing so, it effectively makes the original disappear and then you are back to copies of wills. For a greater degree of protection, it is more efficient to mark the previous will “revoked,” put your signature near the word “revoked,” and put it back in the file. This ensures that when someone presents a copy of the original will, someone else with the original marked revoked can submit it as proof that the copy is null and void. The next step would be to formally create a new will.

Storing Your Original Will

With the importance of an original will already established, the next item on the to do list is to make sure the document is properly safeguarded.

Many individuals choose to store their wills in a safety deposit box at a bank. However, this is not a completely foolproof method. Not all safe deposit boxes are watertight. Should there be a flood, and the will is damp and slightly damaged but still readable, it may be okay. However, should the flood destroy the official document, then you are once again without an original.

Avoid storing original wills in safety deposit boxes or fireproof safes that are underground or at ground-level. Flood waters will be a threat to those documents. Even when putting them in those places above ground, it may still be wise to first put them in a sealed plastic bag.

Lastly, make sure that someone you trust will know where to look for the stored document after you pass. It is key to choose someone you do have a great deal of trust in. This is because whoever finds the original document may compare what they will get from the will that versus what they will get if there is no original document. An untrustworthy person may choose whichever is to their best advantage and could destroy it.

Important Takeaways for Wills

In review, here are the top takeaways about creating, revoking, and storing wills:

1. Make a will and ensure that it is done formally
2. Have witnesses and ask them to sign the document in blue ink
3. Safeguard the original will in a place where it will be well protected (preferably above ground)
4. If you revoke a will, be vocal about it and ensure that you preserve evidence of the fact that the old will has indeed been revoked
5. Make it known to a trustworthy person where the original will is located

Attempting to probate a copy of a will can create undue confusion and heartache. Work with a reputable estate attorney to make sure you are following all the necessary previsions so that your assets will be distributed as you truly wish upon your passing.

If you are planning to apply to probate an estate and do not have an original will, make sure you understand all the steps to comply with the law of your state. A trusted estate and probate attorney will be able to help you with all court requirements.

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Attorneys ad litem are important positions within the probate court system. An attorney ad litem can assist with representing those who cannot represent themselves, such as minor children, incapacitated individuals, and unknown heirs. A court appoints attorneys ad litem in different situations, such as heirship proceedings when there are potential unknown heirs to an estate.

Take the following scenario for example. a woman passes away and does not leave a will. The only known heir she has is her husband of many years. Because there is no will to follow, and a court must do its due diligence to determine all potential legal heirs, the court has to rule out the possibility of any children the woman may have had.  There is always the possibility that the woman had been married before, had a child, and gave up a child for a closed adoption, or that she had a child when she was very young that she did not raise and no one knows about. In a situation like this, an attorney ad litem is appointed to represent these possible children in an heirship proceeding, to explore the possibility there may be unknown children of the woman who do exist. However unlikely, the courts must make sure all known heirs are accounted for before allowing an executor or administrator of the estate to liquidate assets and disperse anything to known beneficiaries.

What Is an Attorney Ad Litem and What Do They Do?

In the case of heirship proceedings, the job of an ad litem attorney is to represent someone who cannot represent themselves. This includes people who are:

• Physically incapacitated
• Mentally incapacitated
• Legally incapacitated
• Minor children
• Unknown heirs who may not know about specific court proceedings

In the case of the last point, a court can say they are not sure if heirs (known or unknown) have notice of the probate proceedings, and the court will want to make sure the interests of all heirs are represented. To do this, the court will appoint an attorney ad litem. This type of lawyer is particularly helpful in the event that the deceased had no will, or the original copy of the will was lost, OR beneficiaries listed in the will cannot be found and are considered transient (homeless or have long lost contact with family and friends).

Without an original copy of the will, the law requires an heirship proceeding. An attorney ad litem is tasked with determining if there could be other individuals or unknown heirs out there. Typically, beneficiaries or acquaintances of the deceased can provide the names of some witnesses that are “disinterested” (i.e. not listed in the will or not intestate heirs). If these individuals have known the decedent or their family for many years, the disinterested witness may be able to share that the witness never knew of a will the deceased put together, or the witness might share that the person was married only one time, or that they absolutely never had children.

One case example includes a woman who passed away without a known will. Subsequently, the court could not find anyone from the woman’s childhood. However, the woman had lived in the same apartment for more than thirty years. An attorney ad litem was appointed by the court to investigate any potential heirs. The ad litem spoke with neighbors on both sides of the woman’s home who said they had never seen any visitors, only pets. An ad litem could feel fairly confident that the decedent  was not married and very likely had no children. That information would then be turned over to the judge who would make the final ruling based on the information the ad litem collected.

Finding an Attorney Ad Litem

All attorneys ad litem have to take some kind of qualifying coursework and be certified to practice as an ad litem. Certain kinds of ad litem work require ongoing certification training to keep up their certification.

Another frequently asked question is if parties can choose their own attorney ad litem. It may be possible for the parties to recommend to the court who they would like to work with. However, the court has their own list or “wheel” for the probate court system which will provide an attorney ad litem for an heirship case. Theoretically, the court is supposed to go down the list from one attorney to the next and the court will assign them as necessary.

Payment for Ad Litems

In Harris County probate court, there is a flat fee of seven hundred dollars paid to an attorney ad litem. These lawyers know going into the case that this will be their compensation.

That said, some ad litems will be required to put in hours and hours of work that go well beyond the scope of what one would consider worth seven hundred dollars of payment. While the court does allow an attorney ad litem to show all of the work they have done and ask for additional compensation, that is not common.

What to Know About Ad Litem Attorneys

One of the most important things to know about working with an attorney ad litem is to have open communication, which includes providing them with all the information and tools they need to effectively do their job. Lawyers in this capacity are not opposed to the case or any party necessarily, and they are not antagonistic to any party in particular. This type of legal representative is simply trying to ensure everyone is represented and that the court has all the information it needs in order to make a ruling.

Be warned that involving an ad litem in the case adds extra costs and time to the case, so it is beneficial to take steps to avoid having to have an ad litem. However, an attorney ad litem is required in some situations, such as heirships if there is no will, probate applications where there is only a copy of a will and known heirs cannot be found, or other specific situations like guardianships.

The bottom line is that attorneys ad litem can represent unknown heirs to the best of their abilities. After collecting as much relevant data as possible, they present that information to the court and then the court will determine what weight to give that information and if more work needs to be done.

If you have the need of an attorney ad litem’s services, you can be better equipped to help them by understanding their job description and exactly what they do for the court case.