DEBT IN THE WATER"ZERO-DOWN " BANKRUPTCY FIRMS COST THEIR CLIENTS PLENTY

Comments (0) By Paul Rubin Wednesday, Feb 2 1994

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The zero-down firms collect their excessive fees in a variety of smarmy ways. Manning and Associates has its clients postdate several months of checks to pay off legal fees, a practice that is a subject of great debate in bankruptcy courts around the nation. (State Bar ethics chairman Chris Skelly, a Maricopa County Superior Court judge, says the bar here has not yet considered the issue.)

Of more dubious legality is how Hessinger and Associates collects its copious attorney's fees. As the Ruthie Dennis case shows, Hessinger and Associates requires clients to sign promissory notes before filing for bankruptcy.

The law firm routinely turns the notes over to finance companies, mostly based in Utah and Nevada. Then the collection agencies play hardball with the supposedly emancipated debtors, charging 18 percent annual interest on the note and warning debtors in bluntly worded letters about ruining their Chapter 7 "fresh starts" if they don't pay up on time.

Hessinger attorneys never reveal this arrangement in Bankruptcy Court documents. To the contrary, they avow that they will not be sharing their attorney's fees with anyone outside the firm.

Glendale debtors Rodger and Lori Voglio say they were fast-talked last October by then-Hessinger and Associates attorney James P. Hernandez about the monthly payments.

Strapped with medical bills and child-support payments, and both being temporarily out of work, the Voglios signed up with Hessinger after hearing the firm's zero-down pitch. Hernandez, they say, told them they could afford $110 per month in attorney's fees.

But even before the couple's first payment came due, they realized Hernandez had miscalculated terribly. They contacted Provo, Utah, debt collector Tom Bailey to see if they could correct things.

They say they asked Bailey--who tells New Times he recalls the conversation--if they could pay him less than the $110 per month specified on the contract. Bailey said he couldn't do that, but the law firm might agree to review the deal.

What no one explained to the Voglios--or to any of the other debtors contacted by New Times--is that the collection of all their bills is automatically put on hold when they filed for Chapter 7 protection. Such debts routinely are later discharged by a judge.

"The finance-company arrangement defeats the purpose of a legitimate bankruptcy," says bankruptcy trustee Richard Brooks. "You're supposed to get a whole new life the day you file. Instead, you're back into debt before you even file."
Zero-down attorneys spend only minutes with their new clients before hurrying them along to an assistant. A lawyer may not see or talk to them again until the meeting with creditors and a bankruptcy trustee--if then.

"We sucked people in with our ads and told them we could solve everything," says a former legal assistant at Manning and Associates, who requested anonymity because he's job-hunting. "A lot of the people who come in are dirt-poor and have little education. They are going to declare bankruptcy, whether they really need to or not."
But at least a few bankruptcy trustees and judges in Texas and California have declared war on certain zero-down tactics.

In a January 1993 ruling that floored the Texas bankruptcy system, Judge Leif Clark ordered that the fledgling San Antonio law firm of Davis and Associates be permanently barred from practicing bankruptcy in his sprawling district that includes Austin, San Antonio, Midland and El Paso.

"When the interests of an innocent and unsuspecting public are also at stake," Judge Clark wrote, "drastic and firm intervention is essential, especially when it appears that they are being victimized by what borders on a criminal enterprise."
The judge cited unqualified lawyers, misleading advertising and other wrongdoing, specifically targeting a former Arizona resident named Larry Majors Sr., the administrator and principal architect of the Davis firm. Larry Majors had followed in the footsteps of his brother Wayne, who led a Dallas zero-down firm from rags to riches to ruin.

Larry and Wayne Majors are hustlers who stepped out of their prison cells and into a gold mine in recent years. They are the masterminds behind the zero-down firms in Phoenix.

Although Larry Majors' current role at Hessinger and Associates is uncertain, his continued connection with Duane Varbel--still a force at the firm that used to bear his name--is not. Larry Majors long has been associated with Varbel, as a business confederate and client in criminal, civil and Chapter 7 bankruptcy matters. Until a few weeks ago, Majors and Varbel were prime players in the flourishing San Diego zero-down firm of Gordon and Associates.

Current and former employees at Manning and Associates say matter-of-factly that Wayne Majors, not Michael S. Manning, does the hiring and firing at the firm.

But Manning says in his letter to New Times, "Mr. Majors is not employed by Manning and Associates as an employee. Mr. Majors is a self-employed consultant that I have hired in the past, however, is not currently retained by me at this time . . . I am not interested in an alleged criminal record of Wayne Majors . . . Wayne Majors dealt with me honestly and fairly."

Since 1991, the Majors brothers have worked zero-down schemes in Texas, California and Arizona, moving from lawyer to lawyer like hucksters in a traveling medicine show. In that time, they have left in their wake overcharged and underrepresented debtors, as well as several disgraced attorneys.