Can You Discuss Possible Fraud Charges With Your Bankruptcy Attorney?

by Beverly Bird

The law is sometimes open to interpretation. In some areas, it’s black and white, leading to concise conclusions. In others, decisions depend on case law: Judges rule based on verdicts and reasoning handed down in the past. One such area involves discussing sensitive issues -- including fraud -- with your bankruptcy attorney. No black-and-white statutory provisions exist, so if it becomes an issue, the judge will have to decide if the information is privileged based on his own interpretation and case law in his jurisdiction.

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Attorney Client Privilege

Attorney client privilege is a constitutional right. Technically, anything you say to your attorney is privileged, even if you convey the information in writing. This means your attorney can’t be forced to testify against you regarding anything you have told him and the court can’t make him turn over written communications as evidence. Because this privilege is your right, you can claim it or waive it. Attorney client privilege exists in bankruptcy law, but -- due to the nature of the proceedings -- a question exists regarding who has the right to waive it.

Role of the Trustee

When you file for bankruptcy protection, the trustee assigned to your case takes control of your bankruptcy estate -- everything you own or have an interest in. A court in Ohio has ruled that a debtor’s estate includes his right to privileged communications with his attorney. The right to waive or assert attorney client privilege transferred from the debtor to the trustee when the debtor filed for bankruptcy. The trustee was legally free to waive the privilege on behalf of the debtor, forcing his attorney to testify in the proceedings and produce privileged records from his case file. The Bankruptcy Court for the Southern District of Florida has taken the same position -- the right to privilege transfers to the bankruptcy trustee as part of the debtor’s estate.

Jurisdictional Differences

The transfer of the right to waive or claim privilege has long been the standard when corporations file for bankruptcy; corporations are not individuals entitled to the protection of their constitutional rights. But courts have been divided as to whether it also applies to personal debtors. This is where case law comes in: Judges faced with resolving such a thorny issue often look to what other courts have done in the past, particularly within the same bankruptcy district. The Ohio court reached its decision because the court felt that the interests of the debtor and the trustee were the same in that particular case. The debtor was not accused of bankruptcy fraud and was not in danger of punishment. However, Florida courts transfer this right to trustees under all circumstances and some states, such as Texas, have issued rulings favoring the debtor, protecting his right to confidentiality.

Talking to an Attorney

If you’re faced with the dilemma of whether to discuss and divulge possible fraud, you can consult with a local attorney without actually hiring him to handle your entire bankruptcy proceedings. You can simply ask for information regarding the trend in your particular state and base your decision on whether to file for bankruptcy based on what you learn. If you question an action that you haven’t yet taken and you’re advised that it’s fraudulent, no harm is done unless you go ahead and commit the action anyway. If you have already committed an act you think might be fraudulent and your attorney is forced to testify against you, penalties can range up to five years in prison for each fraudulent incident. Stiff fines may also be imposed and the debt you sought to get rid of probably won’t be discharged -- after all is said and done, you’ll still owe it.