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THE REAL COST OF GOING BROKE

U.S. Bankruptcy Court Judge Redfield Baum looked at the attorneys sitting before him and got right to the point.

"I'm gonna tell you," he told two representatives of the Phoenix firm of Hessinger and Associates, "in these fee applications, if you don't show exactly what you've done, you're not going to get compensated."
Despite the tough-sounding words, those who had packed into Baum's courtroom last Wednesday left the courthouse still wondering what the future holds for Hessinger and the area's other highly visible "zero-down" law firms.

Some had hoped the judge would lower the boom on the firms' questionable tactics. Although the firms ask for little or nothing to take on a case, zero-down lawyers eventually charge clients about twice as much as attorneys who demand most or all of their fees before a bankruptcy is filed. In February, the State Bar of Arizona formed a committee to investigate allegations against local zero-down firms after New Times revealed their predatory business practices, which are often directed at the poor (Debt in the Water," February 2).

Baum seems to favor a slow approach toward the zero-down firms.
"I am going to take a long, hard look at this," Baum said during the 20-minute hearing. He had scheduled the morning session to discuss his February ruling that the Hessinger firm (formerly named Varbel and Associates) had overcharged financially troubled Phoenix widow Ruthie Dennis while providing her with minimal service.

The judge also ruled earlier that Varbel/Hessinger had illegally failed to disclose contracts with finance agencies to collect its fees--at a high interest rate. (Such a practice defeats the purpose of the Bankruptcy Code, which automatically freezes the collection of all bills when a person files for Chapter 7 protection.)

In his ruling, Baum had ordered the Varbel/Hessinger firm to return about $650 in payments that Ruthie Dennis had already made to the collection agency on her $1,500 legal bill.

The judge also ordered Hessinger and Associates to submit reports detailing the financial arrangements the firm has with hundreds of bankruptcy clients. But court records indicate the firm only submitted paperwork on cases involving Duane Varbel, an about-to-be-disbarred barrister who started the Valley's first zero-down practice in 1992 with the help of a convicted con man named Larry Majors Sr.

And the Hessinger firm provided little information to justify its $1,500 fee in the Dennis case or in any of the other cases.

Instead of making a sweeping ruling, though, Baum has scheduled a series of hearings on zero-down cases in the coming weeks. At those hearings, the zero-down firms apparently will have to prove--on a case-by-case basis--exactly why they charge so much, and how they collect their fees.

Before Baum left the bench, he referred to a letter written to him by Chapter 7 debtor Janice Wisebaker. In the letter, the Phoenix woman described "a nightmare" experience with the Varbel/Hessinger firm in her bankruptcy case.

Her allegations are familiar to those aware of the practices of the zero-down firms: Excessive fees and lack of service are the norm.

"I want very much to know," Wisebaker wrote, "if there is any way I could get some sort of restitution for all the pain, frustration and heartache that resulted from my association with Varbel and Associates."
Baum looked into the spectators' gallery and asked if Wisebaker was present. A woman sitting in one of the back rows raised her hand.

"This is a pretty sad comment of the representation [you] got," the judge said. "But I'm not going to deal with this matter today. I'm going to send a copy to the State Bar, and then I'll decide what I should do next."
Wisebaker nodded. Records show she signed on with Varbel/Hessinger last August, agreeing at the time to pay $1,500 in legal fees after paying $85 up-front. Her Chapter 7 case still hasn't been properly resolved, the court documents indicate.

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Paul Rubin
Contact: Paul Rubin