April 2006
Volume 2, Number 3
Table of Contents

Who Is a Debt Relief Agency Under the Bankruptcy Reform Act

By Corinne Cooper

Excerpt from the book Attorney Liability in Bankruptcy (ABA 2006)

What Is a DRA?

“Debt Relief Agency” is defined in § 101(12A).

The term “debt relief agency” means 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 . . . .

This definition has four elements. Let’s explore them a step at a time.

What’s a Person?

To be a DRA, you first have to be a “person” under the Code. If you aren’t a person, you aren’t a DRA. § 101(41):

The term “person” includes individual, partnership, and corporation, but does not include governmental unit . . . .

This one is easy enough to apply to attorneys, if you aren’t a governmental unit. Whether you practice law as an individual, or in a law firm, you qualify as a person.

What is Bankruptcy Assistance?

Second, you must provide bankruptcy assistance. As noted above, this doesn’t mean just assistance in filing a bankruptcy. Under § 101(4A), “bankruptcy assistance” means any 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 the Bankruptcy Code.

What’s an Assisted Person?

Bankruptcy assistance must be provided to an assisted person. That definition in turn has three parts:

1. Person (see above)

2. Primarily consumer debts: “Consumer debts” is a defined term in the Code:

§ 101(8) The term “consumer debt” means debt incurred by an individual primarily for a personal, family, or household purpose . . . .

This definition is used in many state and federal laws in addition to the Code, and its meaning is well established.

3. Non-exempt assets value is less than $150,000

This may be the trickiest part of the definition (see the discussion in the text). If the client has no non-exempt assets, she’s an assisted person. If the debtor has non-exempt assets in excess of $150,000, then she is not an AP and, as to that case, the attorney is not a DRA.

What Is Money or Other Consideration?

On its face, there isn’t much controversy here. Bankruptcy clinics that provide free advice to debtors are not DRAs. Any consideration is sufficient, and nothing in the statute says it has to come from the AP.

Could a promise made by a debtor to the attorney as a condition of representation—as in, “I promise to deliver my pay stubs and tax returns to you by next Friday”—constitute consideration? It does under contract law, but surely this wasn’t intended by the BRA.

Now let’s apply these definitions:

Who May Be a Debt Relief Agency Under the Bankruptcy Reform Act?

1. Suppose a woman goes to an attorney and says, “My ex-husband has just filed for bankruptcy. How will this affect me?” Like most folks, this woman’s own debts are primarily consumer obligations, and her non-exempt assets are worth less than $150,000. Now, suppose the attorney:

• looks over the property and debt allocation in the divorce decree and tells the woman which items might be excepted from the ex-husband’s discharge,

• attends the ex-husband’s § 341 meeting of creditors, or

• files a complaint to determine the dischargeability of any of the divorce debts.

Under the plain language of the statute, the woman is an assisted person and the attorney has rendered bankruptcy assistance. This attorney is a debt relief agency and must comply with all the mandates of Code §§ 526-528.

2. Suppose the attorney says to the woman, “Let me look over the papers and I’ll get back to you.” That might be enough to become a DRA; the definition of “bankruptcy assistance” includes “services sold or otherwise provided . . . with the express or implied purpose of providing information, advice, [or] counsel.”

3. Suppose, instead of the debtor’s ex-wife, it’s the debtor’s mother who shows up at the attorney’s office because the trustee served her with a complaint to recover her Mother’s Day gift as a fraudulent transfer, or a loan repayment as a preference. The debt relief agency definition would apply, as long as Mom’s debts and assets meet the “assisted person” standard. Informing, advising, or counseling Mom about the complaint is bankruptcy assistance, as is representing her against the trustee!

If no consideration has changed hands yet, the DRA definition hasn’t kicked in. If the attorney realizes the problem and declines to represent her, no consideration has been paid.

But doesn’t the client fit the meaning of a prospective assisted person? If “prospective assisted person” doesn’t include potential clients who haven’t yet entered into a relationship with the attorney, it’s hard to know what the term means. And advising a “prospective assisted person” turns the attorney into a DRA.

4. Some creditors’ lawyers are DRAs as well. Lawyers who do no more than fill out a proof of claim form on behalf of their consumer clients could get swept into the definition as well. “Document preparation,” without more, appears to be enough to constitute bankruptcy assistance.

5. Plaintiffs’ personal injury lawyers are in the same boat. Suppose you represent a person who has been seriously injured by a defendant who then files bankruptcy. When you and the client, who qualifies as an assisted person, begin discussing the impact that this will have on the case, you are giving bankruptcy assistance and are a DRA.

The same is true if the plaintiff has thousands in unpaid medical expenses, his mortgage is in default, and the credit card companies are hounding him. He comes to you to file suit against the person who injured him. But he’s worried about his ability to stave off foreclosure during the pendency of the suit. Wouldn’t bankruptcy be one of the options on the table for discussion? If so, he’s an assisted person, you’re giving bankruptcy assistance, and you’re a DRA.

6. Just to drive home the point, imagine one last example. The pharmaceutical giant Merck goes into bankruptcy. What becomes of counsel in the individual and class-action suits over Vioxx? What about counsel for the creditors’ committee, whose constituents include those individual and class-action plaintiffs? Again, the definition of “bankruptcy assistance” is broad enough to apply, and the matter comes down to the nature of the claimants’ debts and the value of each claimant’s non-exempt assets.

We are not trying to argue that scooping non-bankruptcy attorneys into the law is the right result. This is all patently ridiculous. But that’s the problem with the poorly-written language of the statute. It doesn’t clearly identify its intended targets and, having failed to name them, it could trap lots of unintended victims.

This excerpt was republished with permission from the GP|Solo Publication: Attorney Liability In Bankruptcy; pp. 84-85 and 88-90, by Corinne Cooper, Editor, and Catherine E. Vance, Contributing Editor.


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