Recent Newsletters
BANKRUPTCY LAWYERS FACE
NEW CHALLENGES
The following article appeared in MalpracticeAlert!,
a publication of Ohio Bar Liability Insurance Company, a captive
malpractice insurance company for Ohio attorneys. It is reprinted here
with Ohio Bar Liability Insurance Company's permission.
The Bankruptcy Abuse Consumer Protection Act of 2005 was
passed by Congress and signed into law by President Bush earlier this
year. Amendments to the U.S. Bankruptcy Code place additional
responsibility on attorneys representing debtors. Attorneys who are
found not to have met these responsibilities may be sanctioned for civil
fines, attorney fees and other expenses. These sections of the law
become effective October 17, 2005, and after that date, the playing
field for attorneys representing debtors will be notably changed.
RULE 9011 - SANCTIONS
Rule 9011 of the Federal Rules of Bankruptcy Procedure
gives the court the power to award "sanctions" against attorneys
and their law firms for filing petitions, pleadings or motions that
served to harass or delay litigation, assert a position not warranted
under existing law or an extension of existing law, or issues regarding
factual matters. These provisions have been part of Rule 9011 for some
time.
SECTION 707
New amendments to Section 707(b) of U.S.C. Title 11 are
relevant to bankruptcy counsel. This section covers dismissal of Chapter
7 cases, or conversions to Chapter 13. In the event that a Chapter 7
case is dismissed or converted by motion of the trustee, the court
itself, or on motion of any interested party, can order the debtor's attorney to reimburse the trustee for reimbursable costs in moving to
dismiss or convert the case. The amendments to Section 707 state that
the attorney for the debtor certifies that a
"reasonable investigation
into the circumstances that gave rise to the petition, pleading or
written motion" has been
conducted, that any pleading or any motion
"is well grounded in fact"
and is warranted, and 707(b)(4)(D) states that
"The signature of any
attorney on the petition shall constitute a certification that the
attorney has no knowledge after an inquiry that the information in the
schedules filed with such petitions is incorrect."
There is nothing apparent in the Act that defines what
standard of conduct is required to have conducted an inquiry into the
accuracy of the debtor's
information that will be acceptable. The court will consider sanctions
for any violation under Rule 9011.
SECTION 524
Section 524 of the Code discussing reaffirmation of debt
has been amended to include a certification of debtor's counsel as follows:
"I hereby
certify that (1) this agreement represents a fully informed and
voluntary agreement by the debtor; (2) this agreement does not impose an
undue hardship on the debtor or any dependent of the debtor; and (3) I
have fully advised the debtor of the legal effect and consequences of
this agreement and any default under this agreement."
To what extent does an attorney have to review and audit
a debtor's finances in order
to make this certification? The Act does not answer this critical
question. Will audits have to be conducted before a lawyer certifies
that reaffirmation will not pose an undue hardship?
Amendments to U.S.C. Title 18 state that investigation
of abusive reaffirmations or materially false or fraudulent statements
in bankruptcy schedules are to be conducted by the FBI and U.S.
attorneys.
There are additional requirements for attorneys
representing debtors. Such counsel will be defined as a
"Debt Relief Agency,"
and must do certain things when giving "bankruptcy assistance"
services. Included are providing a written contract explaining their
fees and services within five days after first providing services, and
ads for bankruptcy services must include
"We are a debt relief agency.
We help people file for bankruptcy relief under the Bankruptcy Code,"
see Sections 227-229 of the Act.
These provisions of the Act were opposed by the ABA, and
numerous state bars, including the OSBA. None of the revisions proposed
by various interested persons were accepted, however, prior to passage.
|
