In re Attorneys at Law and Debt Relief Agencies

• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia
• Writing for the Court: Lamar W. Davis, Jr.
• Citation: 332 B.R. 66
• Parties: In re ATTORNEYS AT LAW AND DEBT RELIEF AGENCIES.
• Decision Date: 17 October 2005

332 B.R. 66 In re ATTORNEYS AT LAW AND DEBT RELIEF AGENCIES. United States Bankruptcy Court, S.D. Georgia. October 17, 2005.

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ORDER

LAMAR W. DAVIS, JR., Chief Judge.

The issue before the Court is whether amendments to the Bankruptcy Code, which become effective today, regulating Debt Relief Agencies apply to attorneys licensed to practice law who are members of the Bar of this Court.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPPA") established new and significant restrictions on the activities of debt relief agencies. 11 U.S.C. §§ 526, 527 and 528. They require "debt relief agencies" who render "bankruptcy assistance" to enter written contracts with "assisted persons," disclose the extent of services provided and fees charged, and disclose clearly and conspicuously in all advertising that their services contemplate bankruptcy. § 528. They are required to provide a detailed written notice to all "assisted persons" of the disclosure requirements of the Code, the obligation of accuracy and truthfulness on those disclosures, and that failure to comply with those requirements carry potential civil and criminal sanctions. § 527. They are required to advise the "assisted person" that the person may proceed pro se, or may hire an attorney, or may hire a bankruptcy petition preparer, and that only attorneys and not petition preparers can render legal advice. Id. They are required to provide the "assisted person" with information on how to value assets, how to complete bankruptcy schedules, and how to determine what property is exempt. Id. Debt relief agencies are prohibited from failing to provide the services they contracted to provide, counseling any person to make false statements, or advising the person "to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer ...." § 526(a)(4) (emphasis added).

Section 526(c) creates civil liability for violation of the duties enumerated. It also grants to the Court the right "on its own motion" or that of the United States Trustee or a debtor to enjoin violations or impose civil remedies. This grant complements the inherent authority of a Court to regulate the practice of the members of its Bar, as embodied in this District in Southern District Local Rules 83, 83.5 and Local Bankruptcy Rule 2090.

Debt relief agencies are defined as follows in § 101(12A):

[A]ny person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section 110 ....

Bankruptcy assistance is defined as follows in § 101(4A):

[A]ny goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors' meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title.

Although attorneys are not expressly included in the definition, the language defining debt relief agencies is broad enough on its face to include attorneys and the reference to "providing legal representation" in § 101(4A) suggests that attorneys are covered.

Indeed during the months since passage of BAPCA, considerable analysis of all its

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provisions has been undertaken by the academic and legal community to educate the public, attorneys, and the judiciary of its content, scope and meaning. Commentary relating to these provisions appear to assume or at least raise the specter that beginning October 17, 2005, attorneys will come within the scope of §§ 101(12A), 526, 527, and 528. See HON. WILLIAM HOUSTON BROWN AND LAWRENCE R. AHERN, III, 2005 BANKRUPTCY REFORM LEGISLATION WITH ANALYSIS, p.58 (Thomson/West 2005); Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571, 576 (2005) ("A lawyer who provides any bankruptcy assistance to an `assisted person' is defined to be a `debt relief agency.'"); Coastal Bankruptcy Law Institute Seminar Materials (September 23, 2005) at Tab 4, pg. 2; Hon. Keith M. Lundin, Ten Principles of BAPCPA: Not What was Advertised, 24 AM. BANKR. INST. J. 1, 69 (Sept.2005) (BAPCPA "de-professionalizes bankruptcy attorneys as `debt relief agencies.'"); Samuel Gerdano, 25 Changes to Personal Bankruptcy Law, at ¶ 19, http://www.abiworld. netlbankbill/changes.html ("Attorneys as Debt Relief Agencies"). In the words of one bankruptcy scholar:

More confusing, if not simply absurd, are the provisions setting out requirements for "debt relief agencies." These provisions, due to slipshod drafting, will apply to many attorneys who rarely, or never, represent consumer bankruptcy debtors ...

[The definition of "debt relief agency"] clearly includes attorneys who represent individual landlords or other mom and pop businesses that owe primarily consumer debts, as well as those who represent consumer creditors, or nondebtor spouses who are creditors in title 11 cases, including Chapter 11 cases. Because "person" is defined to include partnership and corporations, presumably the entire law firm is a debt relief agency.

Henry J. Sommer, Trying to Make Sense Out of Nonsense: Representing Consumers Under the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005", 79 AM. BANKR. L.J. 191, 206-07 (Spring 2005). If these commentators are correct, a new layer of regulation will be superimposed on the bar of this Court, and evaluation of new risks and liabilities will preoccupy them as they strive to represent their clients, comply with existing state regulation of their practice, learn the new substantive and procedural mandates of this new law, and adhere to the separate professional standards applicable to members of the Bar of this Court. See Local Rule 83.5(d). That is a burden which should not be borne by the Bar needlessly or merely out of an abundance of caution. It...