One provision added by BAPCPA 2005 that will impact all attorneys who represent consumer debtors is that concerning Debt Relief Agencies (“DRA”). All attorneys who represent consumer debtors are, by definition, Debt Relief Agencies: any person who provides any bankruptcy assistance to any assisted person in return for the payment of money or other valuable consideration [§101(12A)]. An assisted person is any person whose debts are primarily consumer debts and the value of whose nonexempt property is less than $150,000 [§101(3)]. Bankruptcy assistance includes:
- goods or services provided to an assisted person, the purpose of which is to provide:
- information
- advice
- counsel
- document preparation or
- filing;
- attendance at a creditors’ meeting
- appearing in a case or proceeding on behalf—or providing legal representation—of another in a case or proceeding under title 11 [§101(4A)].
Sections 526–528 contain numerous provisions governing a DRA.
A debt relief agency may not with respect to any assisted person [§526(a)]:
- Fail to perform any service that the assisted person was informed would be provided;
- Make any statement, or counsel or advise any assisted person or prospective assisted person to make a statement in a document filed in the case that is untrue and misleading, or that upon the exercise of reasonable care, should have been known to be untrue or misleading;
- Misrepresent to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material omission, with respect to the services that will be provided or the benefits and risks that may result if the person files a bankruptcy petition; or
- Advise an assisted person or prospective assisted person to incur more debt in contemplation of filing bankruptcy or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in the case.
Any waiver of these restrictions by a debtor is unenforceable [§526(b)].
Not later than three business days after first offering to provide services to the debtor, the debtor must be provided substantial information and notices.
- The notice required by §342(b) [the form notice (B201) may be obtained online] and a clear and conspicuous notice advising the debtor that [§527(a)]:
- All information that the debtor is required to provide with a petition and thereafter during the case is required to be complete, accurate and truthful;
- All assets and all liabilities are required to be completely and accurately disclosed, and the replacement value of each asset must be stated where requested after reasonable inquiry to establish such value;
- Current monthly income, the amounts specified in §707(b)(2), and, in a case under chapter 13 of this title, disposable income, are required to be stated after reasonable inquiry; and
- All information provided by the debtor is subject to audit and failure to provide the required information may result in dismissal or criminal prosecution.
- A separate notice must be given that clearly and conspicuously provides the assisted person with “important information about bankruptcy assistance from an attorney or bankruptcy petition preparer” to help the debtor understand what must be done in a routine bankruptcy case and evaluate how much service is required [§527(b)]. The format and content of this notice is set forth in specific detail in §527(b).
- Except to the extent that the attorney provides the information after a reasonably diligent inquiry of the debtor and others to obtain information reasonably accurate for inclusion on the petition, schedules, and statement of financial affairs, the attorney must provide the debtor, in a clear and conspicuous writing, instructions on how to provide all the information required, including [§527(c)]:
- How to value assets at replacement value, determine current monthly income, the amounts specified in §707(b)(2) and, in a chapter 13 case, how to determine disposable income and related calculations;
- How to complete the list of creditors, including how to determine what amount is owed and what address for the creditor should be shown; and
- How to determine what property is exempt and how to value exempt property at replacement value as defined in §506.
Certain requirements are imposed on debt relief agencies [§528].
- Within five business days of first providing assistance to the debtor but, in any event prior to filing the petition, execute and provide the debtor with a copy of a written contract that clearly and conspicuously—
- specifies the services to be provided, and
- the fees or charges for the services and the payment terms.
- Clearly and conspicuously disclose in any advertisement of bankruptcy assistance services or of the benefits of bankruptcy directed to the general public (whether in general media, seminars or specific mailings, telephonic or electronic messages, or otherwise) that the services or benefits are with respect to bankruptcy relief.
- Include in any advertisement the following statement “We are a debt relief agency. We help people file for bankruptcy relief under the Code,” or a substantially similar statement. An advertisement includes a statement that:
- Contains descriptions of bankruptcy assistance in connection with chapter 13 whether or not chapter 13 is specifically mentioned, e.g., “federally supervised repayment plan” or “[f]ederal debt restructuring help” or similar statement that could lead the debtor to believe that debt counseling was being offered when in fact the services were directed to providing assistance in the form of bankruptcy relief.
- Advises that the DRA provides assistance with respect to credit defaults, mortgage foreclosures, eviction proceedings, excessive debt, debt collection pressures, or inability to pay any consumer debt.
Failure to comply with the requirements of §§526–528 subjects the attorney to possible sanctions.
- Any contract that does not comply with the requirements of §§526, 527 or 528 is void and unenforceable [§526(c)(1)].
- The debtor may recover the amount of any fees or charges received, actual damages and reasonable attorneys’ fees and costs if it is found that the attorney intentionally or negligently [§526(c)(2)]—
- failed to comply with §§526, 527 or 528,
- failed to file any required document and the case is dismissed or converted, or
- disregarded the material requirements of the Code or the Federal Rules of Bankruptcy Procedure.
While most of the required disclosures simply codify matters that a prudent, conscientious attorney would ordinarily make, there are at least two that an attorney may be understandably reluctant to make in many, if not most, circumstances, i.e., “you can represent yourself” and “or get help in some localities from a bankruptcy petition preparer.” Even prior to the enactment of BAPCPA rarely would an attorney suggest to a client that going it alone was advisable. With the myriad of pitfalls and traps created by BAPCPA and draconian adverse effect of falling into one of them it is even less, if at all, advisable for an individual to be a pro se debtor. Under the current state of the law governing bankruptcy petition preparers it would, in this author’s opinion, be a substantial ethical breach and a blatant misrepresentation for an attorney to even remotely suggest that an individual can get “help” from a bankruptcy petition preparer. Use of the term “help” is deceptive in that it carries with it a connotation that a bankruptcy petition preparer can assist the debtor in navigating the somewhat convoluted labyrinth of consumer bankruptcy law under BAPCPA. Nothing could be further from the truth, if for no other reason than if the petition preparer did so, the petition preparer would violate §110! Consequently, while §527 may require that an attorney make the disclosures, nothing appears to preclude an attorney from—and an attorney should—adding the caveat “but, I do not recommend that you do.”
Practice Pointers
- At the initial consultation, whether or not the attorney charges, provides a “free consultation,” or is taking the case on a pro bono basis, provide the notices required by §527(a), (b). It may be earlier than required but by so doing as a matter of course at that point the likelihood that the three-day time limit to comply will be missed is eliminated. Even though compliance with §527(a) is not required if there is no charge for the consultation and the debtor does not retain the attorney or the case is taken on a pro bono basis, it is “cheap insurance.”
- Any retainer agreement must comply with the requirements of §528(a)(1). If at the time of the initial consultation the debtor has not decided to retain the attorney, the attorney should provide the debtor with a copy of the retainer agreement. While not required, as a standard practice it will enable the debtor to make a better informed decision about retaining the attorney. If the debtor indicates a desire to retain the attorney at that initial consultation, execute the retainer agreement at that time—do not wait for the five days permitted.
- If retained, provide the debtor with the information required by §527(c) in all cases. Even though not required if the attorney will be providing or verifying the information required, providing the debtor with instructions on how that information is derived will materially assist the debtor in providing the attorney with the necessary factual data to complete the petition and schedules completely and accurately.