May 4, 2005

Bankruptcy “Reform” Declares War on Bankruptcy Bar

Filed under: Bankruptcy & Reform,Taxes & Government — Tom @ 9:32 am

NOTE: This updates the Bankruptcy “Reform” Primer, which is HERE.
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This story from MSNBC/Newsweek lays it out (they used it from Columbus Business First, whose article is here):

The provisions that have drawn the ire of the American and Ohio State bar associations and other attorney groups are:

  • Bankruptcy attorneys who represent debtors have to certify the accuracy of their clients’ bankruptcy schedules, or list of assets, or face court sanctions.
  • Bankruptcy lawyers must certify their debtor clients’ ability to make payments.
  • Debtors’ rights bankruptcy attorneys must advertise themselves as “debt relief agencies.”

The groups are planning to ask that Congress take up a bill that would change those provisions before the law starts this autumn.

But that may prove to be an uphill fight. The bill had broad support from Republicans and Democrats, and it passed handily in the Senate and House. President Bush signed the bill April 20.

“I think the (attorney) provisions are designed to increase the cost of bankruptcy, while the whole tenor of the bill is designed to decrease the number of bankruptcies,” said Jeff Ferriell, a law professor at Capital University Law School in Columbus. (no kidding?-Ed.)

Robert D. Evans, director of the American Bar Association, laid out the case against the requirements in a Feb. 8 letter to the Senate Judiciary Committee. Requiring debtors’ attorneys to certify the accuracy of their clients’ bankruptcy schedules means the lawyers will have to hire auditors to verify clients’ claims, Evans said. That, he warned, would increase the cost of filing for bankruptcy.

And if a debtor’s information is later found to be inaccurate, he said, the lawyer would be required to pay the fees of the creditor’s attorney who contested the information.

“There is some view that this violates … attorney-client privilege,” said Maureen Thompson, executive director of the National Association of Consumer Bankruptcy Attorneys, a lobbying group with 1,700 bankruptcy lawyer members.

Thompson argued the new rules would put attorneys into an adversarial relationship with clients.

Evans warned that attorneys may be less likely to make aggressive legal arguments for fear of monetary retribution.

All of this represents a fundamental change in the nature of the attorney-client relationship–one that is not present in any other area of the law I can think of. (if anyone can name another situation where attorneys are forced into such an adversarial relationship with their clients, e-mail me.

An aide of Chuck Grassley, chief waterboy for bankruptcy “reform,” is not at all concerned about the attorneys. In fact (hold your breath):

But a spokeswoman for Sen. Chuck Grassley, R-Iowa, who sponsored the bankruptcy bill in the Senate, said debtors will be able to find attorneys, even if some take fewer cases.

“Most judges have a list of attorneys who will do work pro bono … so that won’t be a problem,” Beth Levine said.

So nice of Ms. Levine to give away others’ professional time.

This brought forth the ridicule of Moderate Mainstream, who unlike Grassley’s spokesperson, unlike Grassley himself, and unlike every Senator and Congressperson who voted for this abomination, actually and currently works in the field:

Word has it that Bankruptcy Judges have lists of attorneys that perform bankruptcy pro bono. Not sure what planet the spokeswoman from Senator Grassley’s office is on, but it is not in the 7th Circuit. Exactly how many clients does she think attorneys can take pro bono? ALL OF THEM?

Yesterday we were at 341 hearings. A pro se (without attorney) bankruptcy filer was in front of the Chapter 7 Trustee. Almost every schedule and form necessary for the filing of the bankruptcy was either completely blank or incorrect. The Trustee adjourned the meeting and told the debtor to find an attorney. His response: “I was told that filing bankruptcy was easy”. I laughed out loud….

The degree to which this law and the people behind it are out of touch with reality is shocking. The law will require attorneys to represent themselves as something they aren’t:

What most surprises some bankruptcy lawyers is that they will be required to advertise themselves as debt relief agencies.

HUH? Thanks to this legislated requirement to lie, how many consumers will think that a “debt relief agency” is a credit counselor and not an attorney?

And here’s an insurance person quoted in the article about the possibility (really, probability) of bankruptcy attorneys’ liability premiums increasing:

Taken together, the provisions are likely to increase malpractice insurance premiums for bankruptcy attorneys because they will be susceptible to more financial and legal liability, said Robert Reis, president and chief operating officer of Alps Inc., a Missoula, Mont.-based attorney malpractice insurance company. Most bankruptcy attorneys pay $2,000 to $3,000 annually for malpractice insurance, he said, but they likely wouldn’t see increases until insurers see the law’s effects in about seven years.

I have three words to describe an insurance company that waits seven years to increase its premiums in response to higher claims: out…..of…..business.

So what is it with all this mischief? Repeat after me…Bankruptcy “Reform” all along has been about preventing people from filing, increasing their costs, and punishing those who go through with it.