Overview

In 2005, President Bush signed landmark bankruptcy reform legislation, the "Bankruptcy Abuse Prevention and Consumer Protection Act: (BAPCPA) P.L. 109-8, containing provisions that unfairly increases the liability and administrative burdens of bankruptcy attorneys while denying effective legal representation to many Americans. These ABA-opposed provisions require debtors' attorneys to (1) certify the accuracy of the debtor's bankruptcy schedules of assets and liabilities, under penalty of harsh court sanctions; (2) certify the debtor's ability to make future payments under reaffirmation agreements; and (3) identify and advertise themselves as "debt relief agencies" subject to a host of new intrusive regulations. In addition to these bankruptcy attorney liability provisions, BAPCPA also contains several ABA-supported provisions that (1) streamline the bankruptcy appellate system by allowing direct appeals of final bankruptcy court orders to the existing courts of appeals in many cases and (2) permit bankruptcy attorneys to pay referral fees to nonprofit attorney referral programs. BAPCPA law became effective on October 17, 2005.

Status

The ABA has renewed its call for amending BAPCPA to remove the attorney liability provisions and is reaching out to the more than 25 state and local bars that share the ABA’s views on these issues. If these attorney liability provisions are not reversed, they will continue to have a chilling effect on lawyers' willingness to represent debtors in bankruptcy—or to accept pro bono bankruptcy cases—thereby effectively denying legal representation to many Americans. Accordingly, the ABA has prepared draft legislation that would amend the "debt relief agency" provisions in BAPCPA to exclude lawyers and would also repeal the other attorney liability provisions in that statute.

The ABA will continue to encourage Congress to repeal or modify the attorney liability and regulatory provisions in BAPCPA and to adopt its separate partnership and real property bankruptcy proposals, either through stand-alone legislation similar to the ABA’s draft bill or as part of a larger “technical corrections” bill.   

The ABA also filed an amicus brief in September 2009 with the U.S. Supreme Court in the case of Milavetz v. United States challenging certain aspects of the debt relief agency provisions in BAPCPA.  The Supreme Court subsequently issued its decision in the Milavatz case on March 8, 2010.  While upholding the applicability of BAPCPA’s debt relief agency provisions to consumer debtor lawyers, the Supreme Court’s ruling construed certain provisions of the statute narrowly and preserved the ability of lawyers to talk freely with their clients about key bankruptcy issues.  In addition, by specifically listing many examples of permitted attorney advice, the Court provided helpful guidance for consumer bankruptcy lawyers.

Key Points

• The proposed legislation would reverse the harmful provisions in BAPCPA that require the debtor’s attorney to certify the accuracy of the debtor’s schedules, under penalty of harsh court sanctions. While existing federal rules already required all lawyers to certify that their pleadings are supported by the facts, Section 102 of BAPCPA created a harsher standard just for debtors’ bankruptcy attorneys. By holding these attorneys personally liable for the accuracy of their clients' schedules, Section 102 could force many attorneys to hire private investigators and appraisers to verify this information, potentially adding thousands of dollars to the cost of representing a debtor in bankruptcy. Any attorney who fails to take these costly steps— including pro bono attorneys—could face harsh sanctions if the client’s stated financial information proves to be inaccurate. Because of this provision, bankruptcy representation has become unaffordable for many debtors and many firms have stopped providing pro bono bankruptcy services altogether, resulting in many more pro se debtors overburdening the court system.

• The proposed legislation also would reverse the unjust provisions in BAPCPA that require attorneys to certify the debtor’s ability to make future payments under reaffirmation agreements. Under previous law, a debtor could choose to reaffirm certain debts—and retain liability for those debts—if the attorney certified that the decision was voluntary and would not create undue hardship for the debtor. By requiring the attorney to also certify the debtor’s ability to pay the reaffirmed debt, Section 203(a) of BAPCPA has forced many attorneys to conduct costly audits of their clients’ finances—or to simply not represent debtors in this aspect of the bankruptcy case.

• The proposed legislation also would reverse the harmful provisions in BAPCPA that require bankruptcy attorneys to identify and advertise themselves as “debt relief agencies” and comply with intrusive new regulations that interfere with the confidential attorney-client relationship. Sections 227-229 of BAPCPA interfere with the attorney-client relationship by prohibiting debtors’ bankruptcy attorneys—and many non-bankruptcy attorneys—from giving clients proper pre-bankruptcy planning advice. These provisions also have had a severe chilling effect on the willingness of many attorneys to represent debtors by requiring their advertising materials to include awkward and misleading statements identifying them as “debt relief agencies.”

• The key remedial provisions in the proposed legislation are strongly supported by legal groups throughout the country. These reforms have been endorsed by many statewide bar associations including those in Arizona, Arkansas, Illinois, Iowa, Maryland, Missouri, Minnesota, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Utah, Vermont, Virginia, Washington and Wisconsin.

• The proposed legislation would correct the problems created by the bankruptcy attorney liability provisions in BAPCPA in a fair and equitable manner. Instead of unfairly punishing attorneys who provide legal services to debtors in bankruptcy, the proposed legislation would replace the attorney liability provisions in BAPCPA with new language clarifying bankruptcy courts’ authority to discipline attorneys and instructing them to vigorously exercise that authority when misconduct by any attorney or party in a case is shown. The proposed bill would reduce fraud and abuse in a far more effective and equitable manner while eliminating the harmful effects caused by the attorney liability provisions of BAPCPA.

ABA Policy

The ABA believes that primary regulation and oversight of the legal profession should continue to be vested in the highest court of the state in which the attorney is licensed and in the federal and state courts in which the attorney practices, not federal agencies or Congress, and that the courts are in the best position to fulfill this important function. The ABA opposes any federal laws or regulations that would preempt or interfere with existing court rules protecting the confidential attorney-client relationship, including the provisions in BAPCPA that increase the liability and administrative burdens of bankruptcy debtor attorneys. The ABA's views on the bankruptcy attorney liability provisions in BAPCP are outlined in more detail in its recent ABA Fact Sheet (PDF).

Updated as of:

May 2011