In re Yantz

Attorney Jane McKnight (creditor) represented a client (debtor) in a mortgage-foreclosure action who later filed for bankruptcy. The debtor owed McKnight $6,544.08 in attorney’s fees at the time he filed a Chapter 13 bankruptcy and a Chapter 13 plan with the bankruptcy court. McKnight filed a claim in the debtor’s case claiming secured-creditor status in relation to the debtor’s snowmobile, which McKnight alleged was security for $2,500 of the debtor’s attorney fees. The debtor objected. The bankruptcy court held an evidentiary hearing to determine whether McKnight was a secured creditor. At the hearing, McKnight submitted various documents in support of her claim. McKnight submitted a ratified retainer letter, but the letter lacked a description of any collateral and showed no intention on the debtor’s part to give McKnight a security interest. Next, McKnight submitted her paralegal’s notes summarizing a phone call regarding the snowmobile. The notes contained a description of the snowmobile, but not the debtor’s signature or any statement showing the debtor offered the snowmobile as collateral. Next, McKnight submitted an affidavit prepared by her paralegal attesting that during the phone call, the debtor verbally offered to use the snowmobile as collateral for his attorney’s fees. However, the affidavit alleged that the debtor said that if the snowmobile were placed in McKnight’s parking lot with a for-sale sign, it would sell for $3,500, and McKnight could keep the money. Even the affidavit did not allege that the debtor offered to give McKnight the snowmobile as collateral, and the debtor testified that he only wanted to sell the snowmobile from McKnight’s parking lot. Finally, McKnight submitted a letter that she sent the debtor after the call in which she thanked him for his offer to sell the snowmobile. However, the letter did not demonstrate that the debtor had offered collateral or that McKnight had accepted the offer as a security interest.