Imagine a first time homeowner, who bought a home when she was a newlywed.  Seven years later, she is divorced and struggling, saddled with credit card bills and an ever-increasing mortgage arrearage balance.  Or, imagine the recent college graduate eager to start a career as a teacher, with a credit history compromised by late tuition payments and a cellular phone account that the provider “wrote off,” who obtains a car loan at a rate verging on usury, with a total payoff almost double the car’s actual value.  Or, imagine being counsel to a debtor who has previously filed for bankruptcy; it is the eve of a Sheriff’s Sale, and you learn that your client has undergone a major change in circumstances within the past year – since her last bankruptcy filing – caused by a medical crisis experienced by her unemployed husband.

Each of these situations raises significant issues for the debtors and their lawyers under the newly enacted Bankruptcy Abuse Protection and Consumer Protection Act of 2005 (the “Act”).  The Act creates numerous obstacles to obtaining the bankruptcy relief so vital to achieving a “fresh start” in the 21^st Century.  The timing of the Act, during a period of overly liberal consumer lending and exorbitant, ever-rising health care costs, is curious at best.  From the perspective of the debtor’s attorney, the Act also creates ethical obstacles, on its face and in practice.

Ethically, the Act requires an attorney to verify information beyond that required in any other area of the law.  A debtor’s counsel must make “reasonable inquiry to verify that the information contained” in petitions and schedules is “well grounded in fact.”  The Act states, “The signature of an attorney on the petition shall constitute a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petitions is incorrect.”  Thus, not only does the Act place more limitations upon the debtor, it simultaneously presents more rigorous ethical hurdles for the debtor’s lawyer.  Such stringent mandates upon the debtor’s counsel are not only unnecessary in light of existing ethical rules, they also create a disincentive for debtor’s counsel to even assist a debtor confronting financial disaster.

All counsel, whether in bankruptcy practice or any other area of law, have received misinformation from clients.  Additionally, an area such as bankruptcy, which relies heavily upon financial information and numerical data, is even more ripe for oversight and inadvertent human error, including unintentional mistakes by counsel (for both creditor and the debtor).  Thus, a law that holds an attorney personally liable for potential oversight and error is nothing short of draconian.  Even assuming that a debtor’s counsel can create a flawless number entry environment, when looked at from the perspective of a cost benefit analysis, counsel must still wonder, “Is it worth it?”  Is a client’s error in the context of an emotional setting, such as the possible loss of the family residence, even in the face of thorough information gathering and debt counseling, worth the risk of a presumption of debtor failure?  Does the benefit of receiving a fee of several hundred dollars, or even a few thousand dollars, outweigh the risk of a $5,000.00 (or probably higher) malpractice deductible because of a simple and wholly unintentional error?

Fundamentally, the Act purports to embark upon the lofty mission of ridding the bankruptcy practice of the evil filers, serial or otherwise, and their malleable partners in crime, debtor’s counsel.  There is a misconception that debtors are essentially “deadbeats” seeking to shirk financial responsibility and reap a financial windfall through the exemption and discharge features of the current bankruptcy law.  Creditor’s counsel, in their advocacy of the mortgagees and credit card companies, are zealous in their collection efforts, understandably so.  Creditor’s counsel are paid for their advocacy and must protect the best interests of their clients.  And there is a transactional aspect to lending and borrowing that, on paper, ignores the human stories underlying the transactions.

These hypothetical scenarios, which form less than a smattering of the real life examples, are situations that the Act handles in a cold, calculated, and methodical way.  Stricter limitations upon repeat filing, mandatory credit counseling (one must now plan to go bankrupt) and lien stripping, are prominent components of the Act, and ones that arguably accrue to the benefit of creditors more than the benefit of debtors.

The Act seems to have exceeded the bounds of professional decency by shifting such inordinate liability upon debtor’s counsel.  One might suspect that one of the true aims of the Act is to create a disincentive for lawyers to even practice within that area.  The Act’s mandate that debtor’s counsel refer to himself/herself as a “debt relief agency” is another facet of the law that ignores the reality of the practice of law in the same manner that the reality of life is arguably ignored.  Some of our colleagues, aside from practicing bankruptcy on behalf of debtors, also perform collection work as part of their practices.

The nomenclature itself, “debt relief agency,” is confusing to the debtor and that counselor’s creditor clients, to say the very least.  In reality, this terminology does nothing more than dilute the “brand” that so many accomplished attorneys have achieved over time.  Suddenly, these professionals have become agencies, identified by more of an unsophisticated business term than anything else.  Will his or her creditor clients understand that the same “debt relief agency” is also a debt collection firm?

In summary, the new Act ignores the reality of consumer debt and bankruptcy practice representing debtors.  The fundamental ethical tenets of zealous advocacy, in the face of the constraints upon debtor’s counsel imposed by the Act, are at odds.  Debtor’s counsel, even with a substantiated explanation of a necessary repeat filing and a legitimate change of circumstances, might become understandably disinclined to verify a new filing on the eve of the Sheriff’s Sale.  Becoming afraid to practice zealously, ethically, for fear of becoming an insurer, is, to say the least, problematic.

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Mr. Dimmerman (harper@harperlawgroup.com) is a member of Brandeis Law Society.  He is the principal of the Law Office of Harper J. Dimmerman P.C., and operates a title insurance company, DST Land Transfer, Inc.  His practice encompasses residential and commercial real estate, domestic relations, general practice, and litigation.