Niche Bankruptcy Practice Misunderstood

 

Sara Randazzo, WSJ Law Blog

Bankruptcy attorney James Selbach is used to being told he’s overreacting.
That’s because Mr. Selbach, based in upstate New York, spends his days pursuing creditors for legal infractions, like asking someone who has already filed for bankruptcy protection to pay an overdue $80 bill.

Since 2006, Mr. Selbach has focused his practice on defending individuals who are being hounded to pay debts that are in the process of being reduced or discharged in bankruptcy.
His specialty, Mr. Selbach says, is “greatly misunderstood,” mainly because creditors don’t like being dragged into court over something they often claim was an unintentional mistake. They also don’t understand why, after agreeing to stop sending the overdue bills, they are told to pay Mr. Selbach’s $275-an-hour legal tab.

Defense of the so-called automatic stay in bankruptcy, which shields debtors from creditors’ payment demands, comes with a fee-shifting provision that requires losing creditors to pay their opponent’s legal bill. Mr. Selbach argues that without the rule, aggrieved debtors would have no recourse, because the legal bills often end up dwarfing the amount of recovered money.

Mr. Selbach calls a case he handled in 2009 “a perfect example” of how one of his assignments can go. Mr. Selbach’s client, who received an erroneous bill for a car loan payment, received no damages but didn’t have to pay the debt. Mr. Selbach made $12,800, and the creditor had to pay a $3,500 penalty for its failure to prevent bills from being sent to customers who have gone into bankruptcy.
“There should be consequences for violating these people’s rights,” Mr. Selbach told Bankruptcy Beat, acknowledging his clients’ aren’t obvious objects of sympathy. “They don’t have a leg missing. They haven’t been disabled for life. But that’s not the point.”

Last week, the same judge from the 2009 case, Judge Margaret Cangilos-Ruiz of the U.S. Bankruptcy Court in Syracuse, N.Y., chided Mr. Selbach for pushing a case too far in an apparent attempt to earn fees.

As the New York Law Journal (sub. req.) reported, a representative from a bank that automatically withdrew money from one of Mr. Selbach’s clients called Mr. Selbach to see if the payments should continue during the bankruptcy. He never called back, and the bank transferred more money out of the account, violating the stay.

Judge Cangilos-Ruiz wrote in her decision that “it would, in this court’s opinion, have been better practice for counsel to have returned the phone call and nipped in the bud the events which followed.” Despite the dressing down, Judge Cangilos-Ruiz awarded Mr. Selbach $164.50 in fees and expenses and told the bank to refund a $35 fee charged to the debtor.
Mr. Selbach told Bankruptcy Beat he plans to appeal the decision because the judge failed to conduct adequate discovery.

A consumer bankruptcy attorney since the late 1970s, Mr. Selbach says he started delving into his current specialty seven years ago because “I saw the need there.” He estimates he’s pursued more than a thousand cases since then, settling about half of them before they get to court.
Mr. Selbach bristles when judges and lawyers push back because they say they don’t want to create a cottage industry.

“First of all, what the heck is a cottage industry?” Mr. Selbach says. “If it means I have devoted my practice to a niche within a niche, then I am the proud owner of a cottage industry.”
He adds: “And really, is there a lawyer out there not doing it for a fee?”