By Yara Simón in bankruptcy law —

Everything You Need to Know About AI in Bankruptcy Law

Before you implement AI into your bankruptcy firm, here's what you must consider.

Everything You Need to Know About AI in Bankruptcy Law

Artificial intelligence (AI) can transform the legal industry. From research and drafting to forecasting potential outcomes and sending client notifications, AI can simplify many parts of a lawyer’s workflow. It might even dictate you billing hours, as can be the case with bankruptcy law.

As AI becomes more prevalent, there are a few things to take into consideration. This guide is a look at what you must know as a bankruptcy lawyer. Let’s start with what AI is.

What Is Artificial Intelligence?

Artificial intelligence (AI) technology is all around us. If you’ve unlocked your phone with your face or asked a personal assistant like Alexa for the weather, you’ve used AI before. AI, a subfield of computer science, makes it possible for computer to carry out tasks that require human intelligence.

While AI might be the wave of the future, it is not new. Its origins go back to the 1950s when Cliff Shaw, Herbert Simon and Allen Newell unveiled the Logic The-orist, a Research and Development (RAND) Corporation–funded program that could problem-solve, at the Dartmouth Summer Research Project on Artificial Intelligence conference.

Though AI isn’t as advanced as what we see on TV—unlike Iron Man, we can’t have our own personal Jarvis—it can recognize faces, analyze data and more.

Types of AI

There are three main types of AI:

  • Narrow AI: Also known as weak AI, narrow AI can only carry out one to a small set of responsibilities. For example, a tool analyzing language sentiment likely won’t also focus on warehousing logistics.
  • General AI: General or Strong AI doesn’t exist. If it did, it would be like Samantha from Her. Every experience informs future actions, so it can have conversations, strategize and perform different types of tasks as a human would.
  • Superintelligent AI: Just as with general AI, superintelligent AI is more theoretical. If it did exist, it would be smarter than people.

AI Subsets

AI is a broad category that includes neural networks and machine learning.

  • Neural networks: Through interconnected nodes, just as with neurons in the brain, computer systems learn and process information.
  • Machine learning: With machine learning, computers learn and make decisions based on data. A streaming platform making recommendations based on your  preferences is an example  of  machine  learning.  Within machine learning, there is deep learning, which uses large neural networks to parse through and understand big data sets.

AI and Bankruptcy Law

While the legal field is embracing AI, the application and reception isn’t the

same across the board.

AI Uses in Bankruptcy Law

Here are a few ways bankruptcy firms can use AI:

  • Case outcomes: Lawyers can use AI to determine whether a case is winnable. A group of researchers fed an AI tool limited, publicly available data and were able to predict the outcome of Chapter 11 with a 75% accuracy.
  • Case filings: AI can review cases and ensure the information is accurate and complete. Missing information can be cause for dismissal of a case or can mean extra fees if you have to refile.
  • Fraud: AI can also uncover fraud within your filings. While it is rare—an older

Federal Bureau Investigation stat said 10% of all bankruptcy filings involved fraud—it can happen. It’s usually the result of misleading or missing information, and these incorrect numbers can put people or organizations at risk for fraud. 

Bankruptcy Firms’ AI Success Stories

AI can help you perform your work better—this was the case for two bankruptcy firms.

The Empathetic Chatbot

Being empathetic with bankruptcy clients is important. It was a must for lawyer Tara Salinas. “My biggest complaint was that the AI just didn’t sound like me,” she says. “It wasn’t as compassionate as I am with my clients.” 

Not only can a more empathetic tone help instill trust with clients, but for Salinas, it meant a smoother transition from computer program to human. Salinas sought help from Glade for a new and improved chatbot.

“The team at [Glade.ai] came in and created customization all over the software to allow my voice to be the one that clients hear,” she says. “It allows us to automate summaries of our questionnaires. That means when one of my paralegals [goes to] start entering a case, they can get a really quick synopsis of exactly what’s going on there and all [that’s been] done by the AI, which is wonderful.”

Plus, the AI-powered chatbot is available at all hours, meaning Salinas could connect with clients even after hours. 

A Smoother Workflow

When Gary Van Horn joined Van Horn Law Group to help his brother, the founder of the company, grow the company, there was an antiquated system in place. “We were literally on paper and pencil,” Van Horn says. “When a new client came in, they printed a little label. We had those folders that were really expensive. [We used] that special hole puncher to put the paper in the top.”

For a firm with about 50 employees filing about 40 cases a month, this wasn’t feasible. It was difficult for the legal team to find what they needed. “If I saw one more email asking where a file was, I was going to go nuts,” Van Horn adds. 

First, the team tried a variety of tools, like Calendly and PandaDoc. But these programs didn’t speak to each other, so it meant logging into many platforms, which was time-consuming. Eventually, the team switched to Glade. 

“[Glade] is a one-stop shop where they’re able to log in, make payments, sign up,” Van Horn says. “The client will go not only from the intake process but actually to working [on their case] and filing it [all in one place].”

Fees in Bankruptcy Law

Within bankruptcy law, there is also a question of fees. As Karim Guirguis, chief operating  officer  of  the  American  Bankruptcy  Institute,  succinctly  explains, “Lawyers used to do work that robots could do [and bill for that work] — with AI, lawyers can do lawyer work and robots can do robot work.”

Since courts review and decide legal fees in bankruptcy cases, AI can complicate this calculation. It might mean that courts mandate that AI handle specific tasks or there’s increased scrutiny over why a human worker completed a task over AI. That might also need to take the type of bankruptcy firm into consideration, as a small firm may not have the same resources as a larger one. Or maybe there’s more direct fees.

“The day of sending first-year associates out to spend months poring over documents in a warehouse are, or should be, behind us, so it makes sense for the courts to encourage, if not mandate, AI use,” according to Reuters. “To the extent it is currently possible to use data analytics tools to figure out how long thousands of legal tasks should take when lawyers do not use AI, it is quite easy to compare that amount of time to task duration when using AI. Moreover, courts should consider using AI to do a first cut at evaluating fee applications, although humans still have to make the final decisions about what goes into submitted fee applications.”

Understanding that AI will continue to play a role in the legal field, the American Bar Association issued a set of ethical guidelines in June 2024 to guide lawyers using generative AI (GAI). Summarized in formal Opinion 512, the text “identifies some ethical issues involving the use of GAI tools and offers general guidance for lawyers attempting to navigate this emerging landscape.”

Lawyers must maintain their same standards — that is upholding client confidentiality and ensuring accuracy. With AI, there are new elements to consider, such as ensuring lawyers at your firm are using AI responsibly and that AI “hallucinations,” or false information isn’t making its way into your filings. AI also doesn’t have the ability, like a human, to ensure there isn’t any biased information affecting your cases. Some judges have spoken up against the use of AI or at the very least say that lawyers must disclose when they use these tools.

AI is growing, but not all firms embrace it. A 2023 American Bar Association survey found that the majority (58.8%) of participating firms didn’t know or didn’t have enough information about AI to gauge whether they wanted to add AI tools to their workflows. Another 20.5% had no interest in purchasing AI tools. But this technology resonates with solo firms.

Can AI Replace Bankruptcy Lawyers?

AI can transform the field of bankruptcy law, but it can’t replace lawyers and legal teams. Bankruptcy law is a highly complex branch of law that requires the oversight of humans. AI can help you move through cases with increased efficiency, but it’s not a substitute for what a human worker can do for a client.

4 Benefits of Automation in Bankruptcy Law

Automation has the power to simplify your work. Here are a few ways automation can help your practice:

  1. Standardization: In the best-case scenario, everyone on your team received the exact same training. But as humans, we will naturally approach the same situation in different ways. AI can make it so everyone follows the same set of protocols and steps, so every client receives a more consistent experience. For example, if a client signs a contract, it’ll trigger them receiving a checklist of documents they must provide.
  2. Organization: Remaining organized is necessary for bankruptcy law firms. With strict deadlines and the amount of paperwork, it’s hard to maintain productivity without organization. AI can help you keep your documents organized and keep you on task. For example, Noodle has a daily brief that help lawyers know what tasks they must complete on a certain day.
  3. Efficiency: AI can eliminate inefficient steps. For example, you might have to reach out to remind your client to send in certain forms. AI can handle tasks like this for you, giving you time back to focus on things that need a more human touch. 
  4. Errors: AI can also catch errors. This can benefit any team but can be especially useful for small teams that may not have as many people who can review the same work.

How AI Can Benefit Your Clients

AI isn’t only beneficial to legal professionals; it can positively impact clients as well. Here’s how:

  • Increased communication and transparency: AI tools can provide clients with a steady stream of updates as you work on their cases. This provides more transparency into their cases.
  • More attention: Since AI can save you more time in several areas, it can open you up to having more time for clients—whether that’s to answer questions or review information with them, it can make your clients feel that you care about their case.
  • Ability to work asynchronously: AI also enables you to work asynchronously,meaning clients can do their part whenever they have a chance instead of requiring them to come to an office to make progress on their cases.

10 Tools Bankruptcy Lawyers Can Use

Here are a few tools that can improve the work of bankruptcy lawyers:

  1. Document manager: There is a lot of paperwork when it comes to bankruptcy cases. When dealing with a high volume of forms, it can result in misplacing files or getting things mixed up. An automated tool can even alert you if you’re missing a file. AI can help you keep every form in one place, where everyone on your team and your client can review it.
  2. Case analyzer:AI can quickly analyze a person’s case, comparing it to statutes and case law, to help lawyers gain a better understanding of the challenges that will arise.
  3. PDF fill: An AI tool can look at documents and fill out PDF forms, helping to eliminate manual labor and errors.
  4. Meeting scheduler: An artificial intelligence tool can schedule meetings for you with clients, saving you from any extra back-and-forth communication.
  5. Reminders and updates: AI can send reminders and updates to clients any time a new action takes place. For example, if you need more information, a tool can notify a client and then send them a reminder if they don’t send it in a certain time.
  6. Research: You can use AI to help you conduct research. It can parse through case law and decisions to help you find relevant information for your cases.
  7.  Drafting: AI can analyze the work you produce and ensure it sounds authoritative and strikes the right tone. It can also fix typos and other grammatical errors on your arguments or briefs.
  8. Chatbots: Chatbots can provide your clients with assistance at all hours, even when you’re off the clock. It can help move the case forward at any time.
  9. Client Management Systems: Client management systems keep you organized, ensuring that you don’t mix up information as you take on several cases.
  10. Marketing: While marketing tools won’t help you with the actual cases, they can help you grow your business. They can provide insights on when you should send newsletters or update your social media pages. It can grow your visibility, and this can be extremely useful for small teams that might not be able to hire a marketing team.

How to Pick the Best Tools for Your Firm

Not every AI tool will work for your firm, but the good news is that there are so many tools that you can find something that makes sense for you. Here are a few things to consider:

  • Consolidation: Does a tool offer more than one service or is it only capable of handling one task? Having several tools can make it hard to track every part of your workflow. What’s more, if you need clients to sign into these systems, you may also be creating extra work for them.
  • User-friendliness: Picking tools that are user-friendly is important because it can help you and your team more quickly incorporate them into your work routines.
  • Training: If a tool isn’t as user-friendly as it could be, seek help. If the platform offers training, you and your team overcome may be able to overcome learning gaps. 
  • Security: Look at how a company ensures that it will keep your and your clients’ information safe. As you are dealing with sensitive information, it is necessary that you do your due diligence and pick tools that concern themselves with security.
  • Integration: If you do use multiple tools, integration can keep you from having to constantly sign on to different accounts, which can simplify your workflow.
  • Scalability: Don’t simply pick a tool that will work for you now; pick a tool that will grow with your firm. Otherwise, you will have to search for a new tool if you need more support.
  • Cost: Cost is one of the most important factors when picking a tool. Consider whether the price you pay for a subscription is worth it because of the time it saves you in other areas.
  • Compliance: Look for tools that will keep you legally compliant—otherwise, they may do more harm than good.
  • Reviews: Seeing how these tools work for other people can help you decide whether it might work for you. Reach out to colleagues to learn more about their experiences with a product.

How to Incorporate AI Into Your Bankruptcy Law Firm

Adding new tools to your workflow takes some effort, but if you approach it correctly, it’ll feel as though it’s always been a part of the process. 

Set Goals

Before you pick an AI tool for your firm, think about your pain points. Have you had scheduling issues in the past? Is your team overwhelmed with the number of applications they are filling out? Use this information to set new goals. For example, if you want to ensure all clients receive constant updates on their cases, this can help you zero in on a tool that automatically sends them relevant information.

Conduct a Test

Instead of rolling out a product all at once, start with a small test. Pick team members with different experiences so you can learn how easy it is to use, what challenges they faced and what parts made their work easier. This can give you a better idea of whether a tool is useful to your team.

Establish Guidelines

Once you pick a tool, establish guidelines. This is an important step to keep your clients’ information safe. For example, you might tell your team that they cannot use the AI tool outside of the office or they cannot accept to take on a case until a client expressly consents to you using AI.

Train Your Team

While your chosen AI tool may be intuitive to some, it might not be for others. Give your entire team the opportunity to learn how to use AI. Include documentation so they can have a written record of how your firm uses the tool.

Ask for Client Feedback

While the primary goal of AI might be to lessen the burden on your legal team, you also want to make sure the tool you’re using doesn’t overcomplicate things for your clients. Ask them if they feel comfortable with the tool and what they like and don’t like about your new process. This can bring up pain points you might not have considered.

Continue to Evaluate Your System

Your job isn’t done after you pick a tool. You must continue to evaluate it to guarantee it works as it should and that it is still the best tool for your team. If you find that employees are no longer enthusiastic about the tool, it might signal that you need to find new options.

Ethical Considerations

For all the positives that AI can bring to your firm, there are also some ethical concerns. If you plan to use AI in your firm, consider:

  • Privacy: AI systems learn through data, so it’s important that they do not use your clients’ data inappropriately, such as by making it available to other parties.
  • Bias and discrimination: AI can discriminate or have biases against women, people of color, and members of the LGBTQ+ community, so it’s imperative you are not using systems that do not treat everyone equally.
  • Consent: Clients should know you’re using AI for their cases and how it might impact outcomes. It’s possible that a client does not feel comfortable with or trusting of AI.

How Your Bankruptcy Firm Can Remain Ethical While Using AI

You can adopt AI and remain ethical. Here’s how:

  • Analyze  your  systems,  often: Reviewing the tools you use frequently can ensure that you catch biased and discriminatory actions and that the tool is working as it should for you.
  • Review AI’s work: While AI should help make your work easier, you shouldn’t rely on it to do your work with no oversight. This can lead to errors.
  • Take accountability: The person who is ultimately responsible for a case is the lawyer. This can serve as a reminder that you cannot fault AI for any errors that occur because you should be reviewing the work.
  • Look for transparency: It’s necessary that you know how an AI tool makes decisions and how it operates. AI companies should lay out this information. Otherwise, you will be putting trust in a system that you don’t understand, and that can spell trouble.

What Happens If Your Client Doesn’t Want to Use AI?

Not everyone has the technical know-how or trust in technology, and you are likely to come across these clients at some point. Take the time to decide how you will handle cases where clients can’t or won’t use AI.

Ask yourself:

  • What systems do I have in place to take on cases without AI?
  • Are these systems difficult to maintain?
  • Will taking on cases without AI impact the rest of your caseload?

Questions like this can help you have a plan in place in case this situation arises.

Conclusion

As with many other fields of law, the role of AI is not entirely set. While there are tools that can help make your work easier to complete, there are still questions about billable hours and ethics. As things become more firm, it’s important to remain flexible so you can adapt your workflow to whatever comes your way.