San Francisco Bankruptcy Attorney Talks about Law Firm Bankruptcy
San Francisco Bankruptcy Attorney Talks about Law Firm Bankruptcy
As a sign of the times, even major law firms are not immune from the dropping economy. Heller Ehrman filed for Chapter 11 Bankruptcy back in December of 2008. The interesting question is how does a law firm go into bankruptcy? For a sneak peek in the workings of a law firm, a lawyer for Heller Ehrman charges a client for each hour (or fraction thereof) that they spend working on the client’s case. The client is then billed for the work. Assuming that Heller Ehrman was collecting at a reasonable rate and managing the billable work of each attorney, it should never have gotten to a place where it owed money because its employees are retained only if they are producing positive results. (Unlike a car dealer who has to have employees even if no cars are sold).
In Heller Ehrman’s case, the problem was not the amount of work or the client’s not paying. Instead, Heller Ehrman was in a dispute with the landlord over the lease. The two parties reached a settlement agreement which needed a lump sum cash payment. The landlord recorded this agreement as an attachment to Heller Ehrman’s property which created a liability. This attachment affected Heller Ehrman’s balance sheet and caused the banks to deny Heller Ehrman credit when Heller Erhman tried to borrow the money to pay the sum. Without the money to pay the landlord, Heller Ehrman went into default and had to file bankruptcy to protect itself the landlord coming after it for more money.
The scenario above should sound extremely similar to real life people who are faced with bankruptcy now. Many people who have dutifully paid their credit card bills on time every month are suddenly receiving letters from the banks that their credit has been re-evaluated. Due to a higher credit risk (such as a new debt) the bank is cutting the credit limit or raising interest rates. The credit card user, who needed the credit to pay their money expenses, suddenly has no credit and no way to meet their bills. The users are then forced to default on payments to creditors such as the landlord, mortgage company, or utility company. The default creates more debt and restricts the user from getting more credit. The user is then forced to file for bankruptcy.
In Heller Ehrman’s case, it was possible that if the banks did not cut off Heller Ehrman’s credit, it would have paid the landlord and paid back all the money it owed. But the bank’s denial of credit forced the company into a bankruptcy that it did not want. For an individual creditor’s case, if the credit card had not denied credit then the debtor would have paid their bill and repaid the credit card holder plus all the interest. But the denial of credit forced the debtor into default which led to bankruptcy. The parallel shows that debtors, whether they are large law firms or individual debtors, often never want to be in bankruptcy. It is the arbitrary actions of creditors that force them into it.
If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.
