Volume 2, Number 2
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Are Attorneys “Debt Relief Agencies” under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?
Have you or any member of your firm appeared in a Chapter 7 or Chapter 11 bankruptcy proceeding on behalf of a consumer?
Do you include the following language on your firm website or advertisements? “We are a debt relief agency. We help people file for relief under the Bankruptcy Code.”
Probably not. But attorneys practicing bankruptcy law may in fact be required to identify themselves as debt relief agencies according to the newly-enacted Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“the BAPCPA”). One of the new and significant aspects of the BAPCPA are the provisions designed to restrict and monitor the activities of so-called “debt relief agencies.” Among other requirements, Section 528(a)(4) mandates that a “debt relief agency shall… clearly and conspicuously use the following statement in such advertisement: ‘We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.’ or a substantially similar statement.” See generally Sections 526, 527 and 528 for the restrictions on and requirements for debt relief agencies. However, who and what is a debt relief agency, and more specifically, whether attorneys are debt relief agencies, remains a matter of great debate, dispute and confusion.
Section 101(12)(A) defines a debt relief agency as “any 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…”. The definition of debt relief agency does by its terms encompass both non-attorneys and attorneys and specifically all attorneys who represent consumer debtors. See Section 101(3) for the definition of “assisted person” and Section 110(a)(1) for the definition of “bankruptcy petition preparer.” Section 526(c) outlines the penalties for violations of the debt relief agency provisions ranging from voiding of contracts between the debtor and debt relief agency or disgorgement of fees to sua sponte civil penalties or injunctions imposed by the Bankruptcy Court or prosecution by State authorities for injunctive relief or monetary damages against the offending party. The applicability of these provisions to attorneys was left unresolved by Congress and has left bankruptcy attorneys mired in a sea of uncertainty and with potentially great consequences.
In re Attorneys at Law and Debt Relief Agencies
Underscoring the importance of resolution of this issue, one bankruptcy court decided, on its own motion and on October 17, 2005, the effective date of the BAPCPA, “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.” In re Attorneys at Law & Debt Relief Agencies, 332 B.R. 66, 67 (Bankr. S.D. Ga. 2005). Chief Judge Lamar W. Davis of the Bankruptcy Court for the Southern District of Georgia warned that if attorneys were encompassed within the definition of debt relief agencies, “a new layer of regulation will be superimposed on the bar of this Court . . . . That is a burden which should not be borne by the Bar needlessly or merely out of an abundance of caution.” Id.
Judge Davis began his analysis of the debt relief agency provisions with his interpretation of the language of the provisions at issue. He first examined the Section 101(4A)’s definition of “bankruptcy assistance” as that term is used in the definition of debt relief agency, which includes tasks and responsibilities performed by bankruptcy attorneys, including most obviously, “providing legal representation.” Judge Davis did not believe that language to be dispositive of Congress’ intent to include attorneys in the definition of debt relief agency. See id. at 69. He instead concluded “that the inclusion of the term ‘legal representation’ in the definition of ‘bankruptcy assistance’ was Congress’ effort to empower the Bankruptcy Courts presiding over a case with authority to protect consumers who are before the Court, who may have been harmed by a debt relief agency that may have engaged in the unauthorized practice of law, and whose existing remedies for any damage is more theoretical than real.” Id.
Judge Davis also examined the intent and purpose of the particular provisions regarding debt relief agencies including Section 527(b). The Court reasoned that if a debt relief agency is required to instruct consumers that they have the right to hire an attorney, that only an attorney can give legal advice, and that consumers are able to represent themselves pro se in bankruptcy proceedings, it follows that such requirements were not meant to apply to attorneys themselves. See id. at 70.
Judge Davis further relied on traditional ideas of preemption and held that because regulation of both the admission and discipline of attorneys is historically a matter of state law, any attempt by Congress to regulate attorneys through the debt relief agency provisions would have to be clear and explicit. Judge Davis found that the BAPCPA did not meet these requirements. Id.
While Judge Davis’ analysis appears thorough and sound, not all bankruptcy court judges agree with his holding. For example, Judge William Houston Brown of the United States Bankruptcy Court for the Western District of Tennessee in collaboration with attorney Lawrence R. Ahern III recently published an analysis of the BAPCPA in which they opined that the definition of debt relief agencies does in fact include attorneys. See William Houston Brown & Lawrence R. Ahern, III, 2005 Bankruptcy Reform Legislation with Analysis (2005). Judge Brown and Mr. Ahern believe that “[a]ttorneys who provide bankruptcy assistance to . . . debtors fall within the definition of a ‘debt relief agency’ and will be subject to the restrictions and disclosure requirements placed upon those agencies by new Code §§ 526, 527 and 528.” Id. at 58. Judge Brown recognized that these requirements present a quandary for those large number of bankruptcy attorneys who represent both debtors and creditors. By having to advertise as an attorney for a debtor, there is great potential for confusion among perspective creditor clients resulting in harm to bankruptcy practitioners’ practices.
Similarly, an examination of the legislative history of the BAPCPA reveals a record of discussion regarding the difficulties the debt relief agency provisions would cause bankruptcy attorneys by both the House of Representatives and the Senate. However, because those provisions remained part of the BAPCPA as passed, this further undermines Judge Davis’ analysis of Congress’ intent and opens the door for other courts addressing this issue to reach a contrary conclusion. Senator Russell Feingold from Wisconsin proposed an amendment specifically addressing attorneys and the debt relief agency provisions, which “bankruptcy lawyers are very concerned about.” 151 Cong. Rec. S2316 (daily ed. Apr. 22, 2005) (statement of Sen. Feingold). Senator Feingold’s amendment proposed to insert the clause “ other than an attorney or an employee of an attorney” in 11 U.S.C. § 101(12)(A), the definition of “debt relief agency.” 151 Cong. Rec. S2180 (daily ed. Apr. 22, 2005).
According to Senator Feingold, his amendment was necessary because,
151 Cong. Rec. S2316 (daily ed. Apr. 22, 2005)(statement of Sen. Feingold).
The American Bar Association and Federal Bar Association both strongly supported Senator Feingold’s amendment. The Federal Bar Association warned that the debt relief agency provisions would “drive many consumer bankruptcy practitioners out of this area of practice, depriving individuals of adequate legal representation and forcing them to seek less responsible alternatives such as unlicensed bankruptcy petition preparers or to file their petitions themselves.” 151 Cong. Rec. S2316 (daily ed. Apr. 22, 2005)(statement of Sen. Feingold). In essence, Senator Feingold and the Federal Bar Association warned that the debt relief agency provisions would result in less protection for consumers, the opposite result intended by the drafters and proponents of the BAPCPA . Senator Feingold’s amendment regarding attorneys and debt relief agencies was withdrawn before it could be voted on by the full Senate. 151 Cong. Rec. S2316 (daily ed. Apr. 22, 2005)(statement of Sen. Feingold). A similar amendment was proposed by North Carolina Representative J.C. Watt and rejected by the House of Representatives Judiciary Committee. See H.R. Rep. No. 109-31, pt. 1 (2005).
Judge Davis’ opinion has opened the much needed judicial dialogue regarding the applicability of the BAPCPA’s provisions regarding “debt relief agencies” to attorneys. While Judge Davis’ findings are certainly logical, justifiable and no doubt welcomed by bankruptcy attorneys, those conclusions may not be supported by the legislative history. It is certain that other courts will weigh in on this issue, but in light of the potential for serious penalties, including those that can be instituted by a bankruptcy court sua sponte, law firms outside of the Southern District of Georgia with even one attorney representing one consumer debtor must abide by the debt relief agency requirements and regulations.