The attorney-client confidentiality privilege is one of the very few relationships where even if you confess a crime, the information is still secret. For example, if you confess the abuse of a child to your doctor, minister, or psychologist, they must report the information. However, in those types of cases, your attorney must not reveal the information. This privacy allows the attorney to help their clients with legal matters. In fact, without this privacy, the attorney cannot do their work. This is a part of the court system that depends on this relationship to remain private. Without it, the client can’t talk openly with the attorney. What’s more, being a corporation does not remove the attorney-client privilege. Interestingly, even death does not eliminate the confidentiality of information.
The Attorney-Client Confidentiality Privilege in Bankruptcy
However, what creates a problem is that the schedules and petition must be accurate in bankruptcy. Therefore, the attorney cannot make himself part of a fraud or show you how to commit fraud. Unfortunately, the attorney must withdraw from the case, if the client commits fraud which makes the attorney part of the fraud. In withdrawing from the case he may have to let the court know of any errors or mistakes on his part. So, with regard to attorney-client confidentiality privilege, bankruptcy is special.
The attorney has many duties to the court including being truthful and accurate when filing the petition. The attorney must also adequately inform his client about the process. In a bankruptcy case, after the filing of the petition, all information from the preparation of the petition belongs to the court and to the trustee. In addition, only the information used to prepare the petition and business records is discoverable.
Attorney-Client Privilege No Longer Applies in the Event of Fraud
Again, it is in the best interest of the client to honestly prepare the bankruptcy petition and work with his attorney if the client wants to safeguard information. However, if the debtor tries to defraud or manipulate the bankruptcy court, the attorney-client privilege no longer applies. The fact is, a petition becomes an open book for the court, the panel trustee, the U.S. Trustee, and the Department of Justice. Also, it strips away confidentiality if the debtor accuses the attorney of misconduct. If that happens, the attorney may divulge the client’s confidential information to prove he is innocent of wrongdoing.
There may be no attorney-client privilege if the client takes part in any or all the following actions:
- Sells property for less than a reasonable amount.
- Attempts to hide assets.
- Failure to keep books or improperly prepare company books.
Only information that the debtor shares privately and directly with the attorney is ever under protection. Keep in mind that information is like toothpaste—once it is out of the tube you can’t put it back. However, when you share information or it becomes public, it’s no longer under the attorney-client confidentiality privilege.
Additionally, you must be aware of the “do-it-yourself” petition preparers and online services. Unfortunately, they often do not protect your information which means that it is discoverable. So, please keep in mind that information from a 3rd party is generally discoverable because it’s not from the client who is filing.
However, you can give away these rights. In fact, when a debtor files bankruptcy, the debtor waives a small part of their rights. That’s because in filing bankruptcy the debtor must guarantee that the information is accurate in exchange for the right to file bankruptcy. Without this information, the trustee and the judge cannot do their jobs.
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If you are facing bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.