King of Bankruptcy

Some 188,500 hard-pressed individuals and companies in the U.S. went to court last year to declare themselves bankrupt. This year the total may reach a record 250,000. Nowhere is the business of going bust booming more than it is in that erstwhile capital of easy living, Los Angeles. Personal bankruptcies rose by more than 18% in the L.A. area last year, and they are already up another 48% in 1975. So it is no real surprise that the busiest bankruptcy lawyer in the nation is headquartered in Los Angeles. He is Hugh Slate, 58, of Slate & Leoni, which handles one in about every four bankruptcy cases filed in the Los Angeles area (a total of 11,451 last year). Slate & Leoni handles five times as many such cases as any other law firm in the country. "People once thought bankruptcy was just for big companies like the Penn Central," says the folksy, Tennessee-born ex-FBI man. "Now it's for truck drivers, waitresses and the middle class. It has no more stigma than divorce."

To accommodate a growing pool of potential customers, the Slate firm has eight full-time lawyers, seven part-time attorneys and 18 paralegal assistants working out of eight L.A. offices. All but about 340 of the 3,500 bankruptcies they handled last year were personal cases. Slate charges his customers an average of $350 each and claims only $10 of that is profit. Some other lawyers in the city ask as little as $250, and it is possible (though risky) for individuals to handle their own bankruptcy cases with do-it-yourself forms. But Slate promises his clients that an attorney will oversee all key steps in the three-month bankruptcy process, including appearances in court--something most cut-rate lawyers often omit from their service.

Slate's first move with a client is to determine whether a full, or straight bankruptcy is really necessary. "If you can feed your family and have enough to live on, you should pay your debts," he says. One practical reason: a court cannot discharge a bankrupt's debts again for six years, and if more serious financial troubles arise in that period, the debtor cannot escape his creditors. (About one in ten first-time bankrupts goes broke again.)

When a client can pay, Slate recommends a so-called Chapter 13 bankruptcy, under which debts are worked off on an agreed-upon repayment schedule. But when the customer is really flat broke, Slate recommends a straight bankruptcy, which is less painful than it sounds.*

Saved Car. Though Congress has the constitutional authority to establish uniform laws on bankruptcies, the states are permitted to exempt certain holdings from being seized and sold to satisfy creditors. California is one of the most liberal; it allows debtors to keep up to $20,000 equity in a house, $500 in a car, most household goods, tools of trade, $1,000 in a savings and loan association account and $1,500 in a credit union account. Moreover, under a ruling won by Slate a decade ago, Californians may convert any funds or assets into exempt categories before filing a bankruptcy petition.

An example: a man about to go bankrupt owns a car worth $800. Because its value exceeds the allowable exemption, the car would normally be seized. A clever bankruptcy lawyer could avoid that by arranging for his client to borrow $800 from a finance company, using the car as collateral. If this is done, the car has no value except to the holder of the mortgage--i.e., the finance company--so it will not be taken away. To protect the borrowed $800, the client then deposits it in an S and L account, which is exempt from seizure. After being discharged of his debts by the court, the freshly minted bankrupt withdraws his $800, pays off the loan and thus keeps his car--entirely legally. Using such techniques, one Californian was able to retain as much as $30,000 in cash and property, while having all his debts permanently wiped out.

Slate takes pride in never refusing a client, and most of them leave his offices satisfied. Computer Designer Jerry Kiliszweski, for example, faced a $3,000 judgment for a faulty set of cabinets he had built, plus a host of unexpected medical expenses; creditors had garnisheed a quarter of his wages and attached his savings account, car and aged pickup truck. Within 24 hours after Kiliszweski saw Slate, the garnishment and attachments were ended. Recalls his wife Pat: "When I said I don't understand the judicial system very well, Mr. Slate just said, 'Well, honey, everyone ain't been to Sunday school.' "

* The word is said to derive, according to Dr. Johnson, from the phrase used when a 16th century Italian moneychanger became insolvent: "His bench was broke."

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