OPPOSING THE ATTORNEY LIABILITY PROVISIONS

IN S. 256, THE "BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005"

 

WHEREAS, the United States Congress, through the Bankruptcy Code, has long recognized the vital importance of the availability of Chapter 7 bankruptcy relief to debtors who, as a result of sudden job loss, medical emergency or other unanticipated reasons, need relief from crushing debts and the ability to make a fresh start as productive members of society;

 

WHEREAS, members of the Philadelphia Bar Association, including many attorneys practicing bankruptcy law in Philadelphia and surrounding areas, have played an indispensable role in providing the highest quality legal services to thousands of debtors in legitimate need of bankruptcy relief, and have assisted their clients in obtaining relief efficiently and effectively;

 

WHEREAS, the United States Senate is now considering bankruptcy reform legislation, S. 256, that, among other things, would require bankruptcy attorneys to (a) personally certify the accuracy of their clients' factual statements in bankruptcy petitions and schedules ("certification of client statements"); (b) personally certify their clients' reaffirmation agreements ("reaffirmation certification"); and (c) identify and advertise themselves as "debt relief agencies" (collectively, the "attorney liability provisions"); and would impose harsh new liability standards and personal sanctions on attorneys for inaccuracies in their clients' statements or other noncompliance with these three new provisions;

 

WHEREAS, the certifications that would be required in S. 256 go far beyond the requirements of current Bankruptcy Rule 9011, under which bankruptcy attorneys, like all other attorneys appearing in federal court, are required to certify that pleadings and other items that they prepare are supported by the facts before they are filed with the court, and which Rule is identical in form and substance to Federal Rule of Civil Procedure 11;

 

WHEREAS, the certification of client statements provisions in S. 256 would require the debtor's attorney to personally certify the accuracy of the client's bankruptcy schedules, and would hold the attorney personally liable for any inaccuracies in the client's schedules that result in the dismissal of a Chapter 7 petition, or its conversion to Chapter 13 status;

 

WHEREAS, both the certification of client statements and reaffirmation certification provisions in S. 256 would force the attorney to hire private investigators and appraisers to independently verify the existence and value of all the client's assets, thereby adding thousands of dollars to the cost of representing the debtor in bankruptcy;

 

WHEREAS, most individual debtors will not be able to afford these new expenses, resulting in many thousands of additional pro se debtors clogging up the court system;

 

WHEREAS, as a result of the harsh new liability provisions and substantial additional costs imposed by S. 256, many attorneys will no longer be able to represent debtors in bankruptcy;

 

WHEREAS, it is anticipated that most malpractice insurance carriers will exclude the new  liability provisions of S. 256 from coverage under their policies, thereby further discouraging attorneys from representing debtors in bankruptcy;

 

WHEREAS, debtors sometimes voluntarily "reaffirm" certain debts, notwithstanding the bankruptcy filing, and agree to pay those debts for a variety of legitimate reasons, such as maintaining family and business relationships;

 

WHEREAS, while current bankruptcy law requires only that  the debtor's attorney certify that any reaffirmation agreement is voluntary, and would not cause the debtor any undue hardship, the new reaffirmation certification provision of S. 256 would specifically impose an obligation on  the debtor's attorney, for the first time, to certify that the debtor has the ability actually to make payments under a reaffirmation agreement;

 

WHEREAS, like the certification of client statements, the new reaffirmation certification provision would impose personal liability, and the threat of sanctions, on the debtor's attorney, and would require that costly and time-consuming audits of a client's finances be conducted;

 

WHEREAS, these costly and time-consuming audits would further discourage attorneys from representing debtors, and thereby lead to many thousands of pro se filings by debtors who cannot afford counsel, and result in further delays and burdens to the court system;

 

WHEREAS, S. 256 would also require bankruptcy attorneys, under threat of personal liability and sanctions, to identify and advertise themselves as "debt relief agencies," and then comply with a host of burdensome new regulations;

 

WHEREAS, the debt relief agencies designation provisions of S. 256 would seriously interfere with the attorney-client relationship, by requiring all debtors' attorneys to provide their clients with lengthy written disclosure statements containing government-authored legal advice, while prohibiting the attorneys from giving their clients certain proper pre-bankruptcy planning advice;

 

WHEREAS, the debt relief agencies designation provisions of S. 256 also would have a chilling effect on debtors' lawyers and their law firms by requiring all of their newsletters, seminars and advertising materials to include the awkward and misleading statement:  "We are a debt relief agency.  We help people file for bankruptcy relief under the Bankruptcy Code";

 

WHEREAS, the attorney liability provisions of S. 256, taken together, will have a substantial negative impact of the availability of legal representation in bankruptcy for all the reasons cited herein, and will result in thousands of additional pro se debtors;

 

WHEREAS, while the current Rule 9011 holds all bankruptcy attorneys to the same standards, the attorney liability provisions of S. 256 unfairly discriminate between debtor and creditor attorneys because they apply only to debtors' counsel, and attorneys for creditors would not be required to make any additional certifications and would not be made subject to new sanctions under S. 256;

 

WHEREAS, the American Bar Association strongly opposes the attorney liability provisions of S. 256, and sent a detailed letter dated February 8, 2005 to Senator Arlen Spector of Pennsylvania, Chair of the Committee on the Judiciary of the United States Senate, in opposition to these provisions of S. 256;

 

WHEREAS, the American Bar Association letter to Senator Spector dated February 8, 2005 proposed alternative amendments that would replace the proposed attorney liability provisions with stringent new non-dischargeable sanctions against debtors who are not truthful on their bankruptcy schedules and new language urging the bankruptcy courts to vigorously enforce existing Rule 9011 when misconduct by any party is shown;

 

WHEREAS, the president of the Pennsylvania Bar Association strongly opposes the attorney liability provisions of S. 256, and sent a detailed letter dated February 16, 2005 to Senator Arlen Spector of Pennsylvania in his capacity as Chair of the Committee on the Judiciary of the United States Senate, in opposition to these provisions of S. 256;

 

WHEREAS, many other state bar associations strongly oppose the attorney liability provisions, including, as of this date, the state bar associations of Arizona, Illinois, Iowa, Missouri, Minnesota, North Carolina, Ohio, Oregon, Virginia, Washington and Wisconsin;

 

WHEREAS, the members of the Philadelphia Bar Association have long recognized the importance of pro bono assistance in ensuring adequate legal representation for low-income and disadvantaged citizens in the Philadelphia region, and for that reason, created the Consumer Bankruptcy Assistance Project (CBAP) to facilitate the recruitment of lawyers in private practice to represent clients pro bono in filing legitimate bankruptcy petitions;

 

WHEREAS, the attorney liability provisions of S. 256, taken together, will have a particularly devastating impact on the availability of pro bono representation of low-income and disadvantaged debtors, by discouraging volunteer attorneys recruited by non-profit legal services agencies from representing debtors;

 

WHEREAS, most pro bono attorneys now working with CBAP and other legal services organizations likely will no longer volunteer their services as a result of the additional costs and the personal liability provisions imposed by S. 256, as well as the likely absence of adequate malpractice insurance coverage relating to the new attorney liability provisions in S. 256.

 

NOW THEREFORE, BE IT RESOLVED, that the Philadelphia Bar Association opposes the attorney liability provisions in S. 256, and urges the United States Senate to delete these provisions from S. 256, and further urges the United States Congress to delete any similar provisions in other bills that may be pending in the Senate or in the House of Representatives.

 

AND, BE IT FURTHER RESOLVED, that the Chancellor or his designee is authorized to take whatever steps are necessary to communicate the views of the Philadelphia Bar Association to the appropriate members of Congress and to otherwise effectuate this resolution.

 

 

PHILADELPHIA BAR ASSOCIATION

BOARD OF GOVERNORS

ADOPTED:  MARCH 2, 2005