Child support claims in bankruptcy cases are a frequent occurrence. Yet the unique conditions of each bankruptcy can potentially impact the outcome of such claims. Greenberg & Bass was approached by the ex-wife of a Chapter 7 debtor. The woman had a claim for child support of several hundreds of thousands of dollars. Prior to filing his bankruptcy, the debtor had settled a state court action in an amount in excess of the child support claim. However, two law firms that represented the debtor in the state court matter claimed fee liens against the recovery. The debtor also believed that both firms had committed malpractice, notwithstanding the settled claim.
Assuming the attorney fee claims were valid, the ex-wife would see virtually no money on her child support claim. The firm analyzed the fee agreements of both law firms and found that one of the agreements did not comply with Rule of Professional Conduct 3-300. This rule specifically requires that whenever an attorney takes a lien against proceeds of a potential litigation settlement, the client must be told in writing of the option to seek independent consultation from another attorney. In one of the two attorney fee agreements, this important language was lacking.
Pursuant to recent bankruptcy law, the lien for that firm would be deemed unsecured in the bankruptcy. The firm was also able to get some concessions from the firm whose lien was valid. The bankruptcy court approved a motion to compromise between the Trustee and the law firm whose claim was deemed valid. Ultimately, approximately $189,000 was freed up to pay both administrative expenses and more than $100,000 of the child support claim.
Had the firm and the Trustee not intervened to invalidate the other law firm’s claim, which only the Trustee had the power to do, no money would have been available to pay the priority child support claim.