Attorneys Beware

Atttorneys can get themselves in trouble if they are not careful. There are many pitfalls in BAPCPA, but this post is not about all the burdens and duties placed on bankruptcy attorneys.

Suppose an attorney accepts money in trust from a client with instructions on how to disburse the funds. Normally, this would not be a problem. But the attorney might be held liable to a bankruptcy trustee as an “initial transferee” in a fraudulent transfer of assets. Attorneys should read In re Hartwell, 2010 US App Lexis 26367(11th Cir Dec 29, 2010). Attorneys and banks can claim they are a mere conduit or have no control on the proceeds. Trust accounts, of course, are really still the client’s funds and the attorney is bound to listen to instructions. But the Court found that to establish this equitable defense the attorney must establish he acted in good faith and was an innocent participant in the fraudulent transfer.

So attorneys beware, if a client is in debt, has a judgment against him and asks you to hold funds for him and to disburse the funds to relatives, you may be found liable to a bankruptcy trustee. For this Fort Lauderdale bankruptcy attorney, Harwell provides a warning on conduct that is going too far to help a client.

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