Law Firm Must File Bankruptcy When it Cannot Collect

NEW YORK, NY - MAY 29:  A sign hangs on the Ne...

NEW YORK, NY - MAY 29: A sign hangs on the New York Headquarters of Dewey & LeBoeuf LLP on May 29, 2012 in New York City. The renown law firm, which had more than 1,300 attorneys in 12 countries, filed for Chapter 11 yesterday in U.S. Bankruptcy Court in Manhattan as its debts mounted. Dewey & LeBoeuf LLP will keep 150 employees in the U.S. to wind down operations. (Image credit: Getty Images via @daylife)

A lawyer’s dog, running around town unleashed, heads for a butcher shop and steals a roast. The butcher goes to the lawyer’s office and asks, “if a dog running unleashed steals a piece of meat from my store, do I have a right to demand payment for the meat from the dog’s owner?” The lawyer answers, “Absolutely.”
“Then you owe me $8.50. Your dog was loose and stole a roast from me today.”
The lawyer, without a word, writes the butcher a check for $8.50. The butcher, having a feeling of satisfaction, leaves.
Three days later, the butcher finds a bill from the lawyer: $100 due for a consultation.

Regardless of what we have heard about lawyers and what we might believe about lawyers, lawyers provide a service and deserve to get paid like the rest of us. When they don’t get paid, they are just like the rest of us.

According to news articles posted yesterday, Dewey and LeBoeuf, with headquarters located in New York City and one of the larger law firms in the nation, filed for Chapter 11 bankruptcy this past Monday night.

The law firm filed their bankruptcy in the federal bankruptcy court in Manhattan.

A lack of profits, rising long term debt, and a failure to reimburse partner’s investments in the firm was listed by many of the reports as the reason for the failure.

Representatives for the law firm announced they would liquidate and fore go any attempts at reorganization. According to the bankruptcy petition, the firm listed $315 million in liabilities, of which $225 million is owed to banks. They held $255 million in accounts receivables at the time of filing.

Being one of the older and most established firms in the nation, many are speculating on the importance of its demise. Some say Dewey’s demise is not unique among similar large firms that have practiced unbound growth through mergers, competition for lawyers through the offering of large pay packages, and promises of higher salaries for senior partners.

Regardless of the outcome on any debates of the significance of the bankruptcy filing, the law firm failed for the same reason any business fails. There is an inherent risk in all business ventures. When a business leverages its assets for an opportunity to increase its income but fails to increase the income to service the new debts, the business is doomed to failure.

I believe many average individuals who file for bankruptcy protection do not realize that the law firm representing them in bankruptcy is like any other business. If the service a bankruptcy law firm provides you does not generate enough income to pay for all their expenses in operating their business, they, like those of you filing a bankruptcy, will be doomed to filing their own bankruptcy.

The lawyer in the illustrated joke above had every right to bill the butcher for his legal advice. Billing for their services is also how bankruptcy lawyers get paid. They provide you with a service of legal advice on bankruptcy, and you should pay them for their service. Please consider your bankruptcy lawyer is inherently taking as great a risk as any larger law firm, even theĀ  likes of Dewey and LeBoeuf, when they leverage their income by providing legal advice to people who are telling him or her they have no money.

Enhanced by Zemanta
The following two tabs change content below.