All ye attorneys, lend me your ear
For tis bad tidings of which I fear
I am the bearer
Beware lest ye be a bankruptcy petition preparer.One of the little noticed changes wrought by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) was the amendment to §110(a) defining a bankruptcy petition preparer (“BPP”). Under existing law, the definition of a BPP excludes any attorney. As amended, §110(a)(1) defines a bankruptcy petition preparer as “a person other than an attorney for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares for compensation a document for filing” (added language emphasized). The definition of a document for filing in §110(a)(2) remains unchanged: “a petition or any other document prepared for filing by a debtor in a United States bankruptcy court or a United States district court in connection with a case under [Title 11].”
There is nothing in the legislative history or the Congressional Record addressing the reason for limiting the exclusion to attorneys for the debtor. This limitation first appears in 18 U.S.C. §156, added, as was §110, by the 1994 Bankruptcy Reform Act (“BRA94”) [the legislative history for the BRA94 (H.R. 5116) provides no clue as to the reasoning for difference in language between §110 and 18 U.S.C. §156]. The change to §110 first appears in S. 3186 of the 106th Congress, which was substituted for H.R. 2415 (a totally unrelated bill) by the conference committee on the same day it was introduced, passed by Congress, and vetoed by President Clinton. Eliminating the linguistic difference between §110 and §156 makes sense. Why §110 was amended to conform to §156 and not vice versa is unexplained. Also, unexplained is the reason for limiting the exclusion to attorneys for the debtor. The legislative history for the BRA94 [H.R. REP. 103-835 at 56 (1994)] talks solely in terms of persons providing services beyond the secretarial function of completing the forms unsupervised by an attorney. The 1994 language of §110 excluding attorneys and employees of attorneys addressed that concern quite adequately. The language of §156 and the amended language of §110 do not appear to provide any additional protection to debtors.
Under §110(a)(1), as amended by BAPCPA, an attorney who prepares any document for any debtor for filing with the court in connection with a proceeding under any chapter of the Bankruptcy Code falls within one of two categories: an attorney for the debtor or a bankruptcy petition preparer. If an attorney for the debtor, the disclosure requirements of §329(a) and Rule 2016(a) (and, in the case of the attorney for a debtor-in-possession (“DIP”), the application for employment requirements of §327 and Rule 2014) apply. As an attorney for the debtor, unless representation ended prior to the time the petition was filed, an attorney must also enter an appearance for and on behalf of the debtor. As a BPP, each document prepared must be signed by the BPP and include the printed name, address and Social Security number of the preparer [§110(b), (c)]. Either way, even if permissible under otherwise applicable rules of professional conduct, ghost writing on behalf of debtors by attorneys is a virtual impossibility. If that were the only attribute of being a BPP, being classified as such would not be a significant problem. To parrot numerous television ads: “but, wait there is more.” In this case you are not going to like the “more”! The following materials illustrate why an attorney should avoid being characterized as a bankruptcy petition preparer.
Before preparing any document or accepting any payment, a BPP must provide the debtor a written notice in a form prescribed by the Judicial Conference that informs the debtor the BPP is “not an attorney and may not practice law or give legal advice.” [§110(b)(2)] Among the items of legal advice a BPP is specifically prohibited from giving are:
- whether or not to file a petition;
- whether commencing a case under a particular chapter is appropriate;
- whether debts will be discharged;
- whether the debtor will be able to retain the debtor’s home, car or other property;
- tax consequences of filing, including dischargeability of taxes;
- whether the debtor should promise to repay debts or enter in a reaffirmation agreement;
- proper characterization of property or debts; or
- bankruptcy procedures or rights. [§110(e)(2)].
Accordingly, if characterized as a BPP, an attorney may not perform the traditional functions of an attorney—advising a client on the law and its application to the client’s situation. As if that were not enough, the maximum fee that may be charged for the services provided by a BPP is subject to regulation by a rule adopted by the Supreme Court or guidelines promulgated by the Judicial Conference. [§110(h)(1)] This may, as several courts have held, be limited to the amount an experienced typist would charge. In addition, a BPP may not use the word “legal” or a similar word in any advertisement or advertise under any category that includes the word “legal” or any similar term. [§110(f)]. Finally, a failure to comply with these provisions subjects the offender to a fine of not more than $500 for each failure. [§110(l)]
It has been suggested that two arguments might be advanced that the “attorney exception” may not be applied solely to attorneys for debtors: however, neither is likely to prevail. First, it may be argued that Congress lacks the authority to prohibit a lawyer from practicing law per se. However, is that really the case here? Section 110 only applies when documents are prepared for filing in bankruptcy proceedings, not to the general practice of law. Congress clearly has the power to regulate practice and procedure in federal courts [Sibbach v. Wilson & Co., 312 U.S. 1, 9–10 (1941)]. Since Congress has exclusive and nearly plenary powers in the area of bankruptcy [see, e.g., Kalb v. Feuerstein, 308 U.S. 433, 439 (1940)], it seems clear that Congress has the power to pass uniform laws it finds reasonably necessary and proper governing those persons who prepare documents for filing with the court during the bankruptcy process. [U.S. CONST., ART I, §8, CL. 4; CL. 18] In the context of §110, Congress is regulating only the qualifications and scope of services that may be provided by those who prepare documents for filing by a debtor in a federal court.
Second, it may be argued that when an attorney is providing legal assistance to certain consumer debtors, he is also a Debt Relief Agency (“DRA”) overriding §110. Section 527(c) requires a DRA to provide certain information that would be prohibited “legal advice” under §110(e)(2), e.g., value assets, compute current monthly income and allowable expenses under the means test, how to list creditors and determine the amounts owed, and determination of exempt property, including valuation. Granted §527(c) not only permits but requires that information be given if not otherwise prohibited by otherwise applicable nonbankruptcy law (which an attorney is certainly not prohibited from doing under nonbankruptcy law), and §110(e)(2) is not nonbankruptcy law. This argument butts its head against the rule of statutory construction that when there is a conflict between a general statute and more specific statute, the more specific governs. [Fourco Glass Co. v. Tranmirra Products Corp., 353 U.S. 222, 228–29 (1957); 2A NORMAN J. SINGER, SUTHERLAND ON STATUTES AND STATUTORY CONSTRUCTION §46.05 (6th ed. 2000)] That is, while a specific statute may permit something otherwise prohibited by a general statute or prohibit that otherwise permitted under a general statute, the reverse is not true. In this situation, the BPP provisions of §110 are more specific than Debt Relief Agency provisions in §§526–528 (a DRA necessarily includes a BPP, but a DRA is not always a BPP). Consequently, §527(c) cannot permit what §110(e)(2) specifically prohibits.
In addition, the Debt Relief Agency provisions apply only if the client is an “assisted person,” defined as one having principally consumer debts and nonexempt property of less than $150,000. Section 110 on the other hand applies to any document prepared for filing by any debtor in a bankruptcy proceeding for which compensation is received. An attorney preparing a document for a business debtor under any chapter runs the risk of being classified a BPP, not the attorney for the debtor. As noted above, if an attorney for the debtor, the attorney must comply with §329 and Rule 2016 in any event (and in the case of the attorney for a DIP, §327 and Rule 2014). If the attorney does not comply with those requirements, is not the attorney a BPP as defined in §110? In its present form, limiting the exception to attorneys for a debtor, §110 is a potential trap for the unwary with potentially disastrous consequences if an attorney inadvertently becomes a BPP.
I am sure that there are fertile minds (and even some imaginations) that will conjure up challenges to §110 as amended by BAPCPA. Whether any of these may eventually prevail remains to be seen. In any event, prudence (or, perhaps more aptly stated in the case of the author, cowardice) should cause most attorneys to decline any invitation to be the guinea pig to test either the authority of Congress to limit the exclusion or whether §527 overrides §110. In the meantime the solution is simple: if preparing documents for debtors to file a bankruptcy proceeding, do as an attorney for the debtor and appear in the case. In short, follow the adage “in for a penny, in for a pound.”
Loophole 1
Section 110 only applies if the attorney is compensated for preparing the document. If the attorney prepares the document on a pro bono basis, §110 does not apply. As long as the attorney is willing to forgo compensation, the “BPP problem” disappears (although if an attorney does this too frequently, the attorney may find the need to seek bankruptcy relief on his or her own behalf).
Loophole 2
Section 110 only applies to a person who prepares a document for filing. The definition of “prepares” is a key. One definition of “prepare” is to put together or put in written form [see, e.g., MERRIAM-WEBSTER ONLINE]. Obviously, if the attorney or an employee of the attorney physically prepares (by typing or use of a software program) the document, the attorney has “prepared” the document and is subject to §110. But what if the attorney does not do the actual physical preparation of the document. For example, the debtor merely consults with the attorney and/or requests that the attorney review for correctness documents physically prepared by the debtor or another person, e.g., a “non-attorney“ BPP? This might logically fall within one of the other definitions of prepare: to make ready beforehand for a particular purpose or use; or to work out the details or plan in advance. [Id.] But does it really? If, as several bankruptcy courts, as well as the Ninth Circuit, have held and the legislative history of §110 suggests [H.R. REP 103-835 at 56 (1994)], the only function that a BPP can perform is to transcribe or type information provided solely by the debtor on the appropriate forms; a person who does not perform this secretarial function should not be classified as a BPP. It would be somewhat incongruous to hold that a person who did not perform the sole function permitted to be performed by a BPP, was nonetheless a BPP because the services provided might fall within another common definition of the term “prepare.”