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Jul. 30, 2002
Bankruptcy Bar Fears and Loathes Bill Nearing Approval
SAN FRANCISCO - Bankruptcy reform legislation nearing congressional approval will make it harder for lawyers to represent clients, analysts predict.
"The upshot is to discourage lawyers from practicing consumer bankruptcy law," said Federal Bankruptcy Judge Randall Newsome of Oakland. "It will drive lawyers out of the area, and we'll be left with the scourge of unlicensed bankruptcy petition preparers."
One scholar likened the bill's intrusion into the attorney-client relationship to state regulations governing doctors who provide abortions, and their patients.
Legal malpractice insurance carriers plan to exclude coverage for the legislation's new attorney liability provisions, one industry authority said.
The measure, heavily promoted by credit card companies, emerged from a House-Senate conference committee Thursday. The House was considering the bill late Friday; Senate passage could come today.
The American Bar Association has called the law's attorney liability provisions "harsh" and "a disaster" and urged members to lobby against it.
President Bush has said he will sign the bill, known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2002. It is scheduled to go into effect six months after he signs it.
The legislation would police the relationship between bankruptcy attorney and debtor client in three chief ways:
• Under Section 102, courts could sanction lawyers who fail to verify their clients' debt and asset claims.
• Section 203 would require attorneys to certify their clients' ability to make payments in so-called reaffirmation, or restitution, agreements.
• Sections 227-229 would require bankruptcy attorneys to identify their firms as debt relief agencies and to furnish clients with long government-written disclosure statements, whether they agree with the content or not.
"This is a major change in the traditional American view of what a lawyer is," said G. Ray Warner, a scholar in residence at the American Bankruptcy Institute of Alexandria, Va., which represents the bankruptcy bar's views.
"The proper role of a lawyer is to be an advocate for his or her client's position, not to insure the client's case."
Warner, who teaches bankruptcy and commercial law at the University of Missouri's Kansas City School of Law, said the net effect of the legislation will be to ride bankruptcy lawyers out of business.
"It's a major disincentive to take cases," he said. "It turns lawyers into quasi-judges who must determine whether their clients' claims have merit. It may decimate the bankruptcy bar because it will make it so cumbersome to handle small-dollar cases."
One improvement in the legislation emerged from the conference committee: Courts now "may" impose sanctions if lawyers fail accurately to verify debt and asset statements. Earlier versions made sanctions mandatory.
"It's not terribly helpful, but it does put the judge back in it," Warner said. "I can easily imagine credit card companies pursuing sanctions as a litigation strategy, however."
There were 1.45 million bankruptcy filings in 2001, a 19 percent increase over 2000.
Credit card companies and other lenders lobbied hard for the new law; consumer groups opposed it. Sen. Charles E. Grassley, an Iowa Republican, said the bill would "close loopholes exploited by big spenders who have the ability to repay their debts."
Sen. Paul Wellstone, a Minnesota Democrat, said he will fight the bill's passage. He called the measure "dastardly for consumers, especially in these economic times."
The legislation stalled for months as lawmakers fought over a controversial provision regarding court fines assessed against anti-abortion activists who violate clinic protection statutes.
The compromise announced Thursday restricts protesters' right to use bankruptcy to avoid paying fines.
Warner saw another link between the legislation and laws regulating doctors and patients.
"It's going to make bankruptcy lawyers more like doctors who perform abortions," he said. "States have enacted many laws requiring doctors to counsel women before doing the procedure. This new law also mandates government-specified limits on an attorney's professional judgment, by prohibiting some kinds of legal advice."
Forbidden are suggestions that clients assume new debt to pay for their bankruptcy, for example.
A leading malpractice insurer said underwriters regard the bill's attorney liability provisions as uninsurable sanctions.
"This creates another attorney minefield without the opportunity for insurance relief," said Robert Minto, president of Attorneys Liability Protections Society Inc., of Missoula, Mont.
"Lawyers are scared to death of this," added Minto, who is on an ABA committee looking at the legislation.
The chairman of that committee, Larry Feinstein, of Seattle's Bortman & Feinstein, protested that the measure targets lawyers as a way of keeping debtors out of court.
"Congress perceives that debtors are abusive of the process, so they're cracking down on attorneys," he said. "The bankruptcy bar will probably figure out a way to meet these new tests, but general practitioners will cease doing bankruptcy cases."
John Roemer
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