ABA SAYS: PROPOSED BANKRUPTCY PROVISIONS THREATEN COURTS AND CONSUMERS

March 17, 2003

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WASHINGTON, DC, March 17, 2003 – The American Bar Association is warning Congress that several provisions in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003 (H.R. 975) would deny consumers access to legal representation, undermine the attorney-client relationship, and clog the courts with needless litigation. “These specific provisions pose a serious threat to the operation of the bankruptcy system and should be removed,” says ABA President Alfred P. Carlton, Jr.

The ABA commented on the bill in a March 4 letter submitted to the House Judiciary Subcommittee on Commercial and Administrative Law. Carlton said that the current draft of the bill would “have a strong negative impact on individual debtors who are seeking a fresh start under the bankruptcy laws by subjecting their advocates to costly new regulations and liabilities beyond those faced by lawyers in any other field of practice.”

Carlton pointed to three provisions in particular that “would discourage many attorneys from agreeing to represent debtors at all, while significantly increasing the expenses of clients who are able to obtain legal representation.” In addition, the new provisions would discourage lawyers from volunteering for pro bono bankruptcy cases, he said.

Among the most troublesome provisions are those in Section 102 that would require lawyers to certify the accuracy of all facts in the debtor’s Chapter 7 bankruptcy petition and schedules, and would punish debtors’ lawyers instead of the debtors themselves for factual inaccuracies and errors.

These new requirements would seriously erode the confidential attorney-client relationship and “transform the attorney from an advocate to a detective and informer.” Carlton said. He went on to note that the requirements would force many lawyers to refuse cases, and significantly increase the cost of filing for bankruptcy, denying debtors timely, effective and affordable representation just when they need it most.

Another section of the bill would impose new, unique burdens on debtors’ lawyers by requiring them to certify that their client is able to make payments on debts that they choose to reaffirm (and thus retain liability for). If the debtor later proves unable to make payments on the reaffirmed debt, the debtor’s attorney could be subject to sanctions. This new provision would force debtors’ lawyers to extensively audit their client’s finances and make financial or household decisions for them. In cases where clients direct their lawyers to reaffirm debts that are later determined to be unaffordable, the requirement would create a conflict of interest between lawyer and client.

Other sections of the bill would require bankruptcy lawyers and many non-bankruptcy lawyers to identify and advertise themselves as “debt relief agencies,” which would subject them to a host of other new regulations, including restrictions on the types of advice that they may give their clients. The language fails to differentiate between lawyers, who already are licensed and subject to ethical safeguards and sanctions through their state courts and bar associations, and non-lawyers.

The ABA presented specific amendments to H.R. 975 that would enable Congress to fight abuse without dramatically increasing the cost of legal representation, damaging pro bono work, or harming the attorney-client relationship.

The American Bar Association is the largest voluntary professional membership association in the world. With more than 410,000 members, the ABA provides law school accreditation, continuing legal education, information about the law, programs to assist lawyers and judges in their work, and initiatives to improve the legal system for the public.

Stephanie Ortbals-Tibbs, Director of Media Relations and Public Policy Communications, American Bar Association