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Bankruptcy Basics: Why Take Pro Bono Cases

In 2017 the American Bankruptcy Institute (ABI) established a Commission on Consumer Bankruptcy for the purpose of researching and recommending improvements to the consumer bankruptcy process, ranging from policy suggestions to proposed statutory amendments. The Commission was particularly focused on studying how the 2005 BAPCPA amendments affected the availability of bankruptcy relief to consumers. The Commission released its report in 2019.

Bankruptcy Basics: How to Volunteer

If you are interested in handling a pro bono bankruptcy case and are looking for information about local programs, check with the local bar association or legal services provider. You can find a Legal Services Corp. (LSC)-funded legal aid organization near you by using the locator on the LSC website: https://www.lsc.gov.

Bankruptcy Basics: Debtor Attorney Duties Under Bankruptcy Rule 9011

Bankruptcy Rule 9011, which is modeled after Rule 11 of the Federal Rules of Civil Procedure, governs attorney conduct by setting forth requirements for the signing of papers and representations made to the bankruptcy court. Most documents filed or submitted in a bankruptcy case are subject to Bankruptcy Rule 9011 and must be signed by at least one attorney of record.

Bankruptcy Basics: In General

The law also provides other dispute rights, although these legal rights vary dramatically depending on the nature of the transaction, and some are of more practical use than others. Exercising rights to dispute debts and charges may result in the elimination of certain debts, allowing the debtor to commit more of the household monthly income to necessary expenses.

Bankruptcy Basics: Right to Cancel

Reaffirmation agreements may be canceled at any time before the entry of the discharge order, or until sixty days after the agreement is filed with the court, whichever occurs later. 11 U.S.C. § 524(c)(4). No reason is required for canceling a reaffirmation agreement, but written notice of the cancellation must be given to the creditor.

Bankruptcy Basics: Judicial Liens.

Section 522(f)(1)(A) gives the debtor the right to avoid any judicial lien that impairs an exemption, except a lien securing a domestic support obligation (as defined in section 101(14A)). The term judicial lien is defined broadly, and includes levies, judgment liens, and liens obtained in any legal or equitable proceeding. 11 U.S.C. § 101(36). The right to avoid judicial liens extends to every type of exempt property, without limitation, including property exempted under wild card provisions.

Bankruptcy Basics: Liquidating Chapter 13 Plans

For some clients a chapter 13 plan may not be feasible because their income is insufficient to fund a plan, or they have excessive unsecured debt that must be paid due to application of the “best interest of creditors” test. See Chapter 4, supra. Even in this situation a client may elect to file bankruptcy so as to gain the protection of the automatic stay while attempting to liquidate the property.

Bankruptcy Basics: Overview.

Several provisions of the Bankruptcy Code impose additional responsibilities on attorneys representing debtors in consumer bankruptcy cases. One such set of provisions is found in section 707(b)(4)(A) through (D). These provisions, discussed below, require additional attorney duties and certifications which are only applicable in chapter 7 cases. See 11 U.S.C. § 103(b).

Bankruptcy Basics: Costs and Attorney Fees for Successful Abuse Motions—Section 707(b)(4)(A).

As noted above, under section 707(b)(4)(A), costs and attorney fees incurred in prosecuting a successful section 707(b) motion to dismiss the case as an abusive filing may be assessed against the debtor’s attorney if the attorney violates Bankruptcy Rule 9011 in filing the bankruptcy case itself. This provision mirrors the duties already imposed on attorneys under Bankruptcy Rule 9011, but provides the court with more flexibility to award monetary sanctions against an offending attorney.

Bankruptcy Basics: Introduction

In order to provide the information necessary to make the determinations concerning the presumption of abuse in chapter 7 and concerning disposable income in chapter 13, the debtor must file the appropriate version of Official Form 122. Bankruptcy Rule 1007(b)(4). These forms, though lengthy and complicated, are largely self-explanatory. Fortunately for pro bono and other attorneys representing debtors whose income falls below the state median income, only one of the forms must be completed.

Bankruptcy Basics: Civil Penalties Under Bankruptcy Rule 9011—Section 707(b)(4)(B).

Similarly, under section 707(b)(4)(B), a court may assess a civil penalty against a debtor’s attorney who violates Bankruptcy Rule 9011, and such penalty may be payable to the trustee, the United States trustee, or the bankruptcy administrator. Like the fee-shifting provision of 707(b)(4)(A), this penalty may be assessed in favor of the trustee, the United States Trustee, or the bankruptcy administrator even if the penalty is assessed on the court’s own initiative (or on the motion of another party).

Bankruptcy Basics: Overview

Sections 526 through 528 regulate the activities of “debt relief agencies,” which are defined below. While not all attorneys are debt relief agencies and not all debt relief agencies are attorneys, an attorney practicing bankruptcy law should be knowledgeable of all the statutory duties, restrictions, and requirements governing debt relief agencies.

Bankruptcy Basics: Applicability of Debt Relief Agency Provisions to Debtor’s Attorney

A “debt relief agency” is defined as any person who provides bankruptcy assistance to an assisted person in return for compensation or who is a bankruptcy petition preparer as defined in section 110. 11 U.S.C. § 101(12A). The statutory language is certainly broad enough to apply to attorneys. In fact it is so expansive as to potentially include attorneys who represent individual landlords, small businesses, and nondebtor spouses as creditors in bankruptcy cases, if they are “assisted persons” within the definition provided in section 101(3).

Bankruptcy Basics: Restrictions on Debt Relief Agencies

Several provisions found in section 526 restrict practices that generally had been considered improper even prior to the enactment of BAPCPA. For example, subsections 526(a)(1) and (2) prohibit debt relief agencies from failing to perform services as promised, from making or advising a client to make untrue or misleading statements, or advising clients to make statements that an agency should know are misleading. Section 526(a)(3) also prohibits debt relief agencies from misrepresenting the services to be provided to an assisted person or the benefits and risks of bankruptcy.

Bankruptcy Basics: General.

Section 527 requires that debt relief agencies provide various disclosures to all assisted persons being provided bankruptcy assistance.

Bankruptcy Basics: Written Notice Required by Section 342(B)(1).

Section 342(b) requires the clerk to give each consumer debtor a notice, prior to the filing of the petition, describing each chapter under which such individual may proceed, the services of credit counseling agencies, and the possible consequences of bankruptcy fraud. In addition, section 521(a)(1)(B)(iii) requires the debtor’s attorney to file a certification that the attorney delivered the notice to the debtor.

Bankruptcy Basics: Required Statement About Bankruptcy Assistance Services.

A debt relief agency must also provide the assisted person with the statement about “bankruptcy assistance services” set out in section 527(b), or in substantially similar language to the extent applicable. The required statement must be clear and conspicuous and must be provided in a separate document. (The statement is reproduced on the following page.)

Statement Required by Section 527(b)

IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER

Bankruptcy Basics: Advertisements

Section 528(b)(2) requires that any advertisement directed to the general public indicating that the debt relief agency provides assistance with respect to “credit defaults, mortgage foreclosures, eviction proceedings, excessive debt, debt collection pressure, or inability to pay any consumer debt” shall:

Bankruptcy Basics: Overview

Virtually every consumer debtor has a credit reporting file that contains information about where the debtor lives and works, how the debtor pays their bills, and whether the debtor has filed for bankruptcy. A credit bureau can only report the most accurate negative information for up seven years, and bankruptcy information for ten years.

Bankruptcy Basics: Behind the Numbers.

Free credit reports do not include a credit score. A credit score is a number that summarizes a consumer’s credit history based on a number of different factors and scoring systems. Many businesses, including mortgage lenders, credit card issuers, automobile lenders, and even insurance companies and utilities, base their prices and decisions on the credit score, not the complete report.

Bankruptcy Basics: How to Obtain a Consumer’s Credit Score.

Lenders who use a credit score in connection with a mortgage application must provide the applicant with that credit score and with the associated key factors affecting the score. In addition, consumer reporting agencies are required to provide consumers with their credit scores upon request. The charge for obtaining the score is set by the Federal Trade Commission. Consumers are entitled to receive the following from consumer reporting agencies: