On April 20, 2005, President Bush signed landmark bankruptcy reform legislation, P.L. 109-8 (formerly, S. 256), that dramatically increases the liability and administrative burdens of bankruptcy attorneys while denying effective legal representation to many Americans. These ABA-opposed provisions require debtors' attorneys to (1) certify the accuracy of the debtor's bankruptcy schedules of assets and liabilities, under penalty of harsh court sanctions; (2) certify the debtor's ability to make future payments under reaffirmation agreements; and (3) identify and advertise themselves as "debt relief agencies" subject to a host of new intrusive regulations. In addition to these bankruptcy attorney liability provisions, the new law also contains several ABA-supported provisions that (1) streamline the bankruptcy appellate system by allowing direct appeals of final bankruptcy court orders to the existing courts of appeals in many cases and (2) permit bankruptcy attorneys to pay referral fees to nonprofit attorney referral programs. The new bankruptcy law became effective on October 17, 2005.

Now that the 110th Congress is under Democratic leadership, the ABA has renewed its call for amending BAPCPA to remove the attorney liability provisions and is reaching out to the more than 25 state and local bars that share the ABA’s views on these issues. If these attorney liability provisions are not reversed, they could have a severe chilling effect on attorneys’ willingness to represent debtors in bankruptcy—or to accept pro bono bankruptcy cases—thereby effectively denying legal representation to many debtors. In addition, several federal district and bankruptcy courts have concluded that the “debt relief agency” provisions in BAPCPA that prohibit the rendering of certain legal advice violate attorneys’ First Amendment rights. See, e.g., Susan B. Hersch v. United States, 347 B.R. 19 (N.D. Tex. 2006) and Olsen v. Gonzales, 350 B.R. 906 (D. Or. 2006). Meanwhile, a number of courts have held that the term “debt relief agency” does not apply to licensed attorneys, but that if it did apply, it would violate the attorneys’ First Amendment rights. See, e.g., Milavetz, Gallop & Milavetz P.A. v. United States, 355 B.R. 758 (Minn. 2006); and In Re Reyes, 2007 WL 136934 (Bankr. S.D. Fla.).

On May 1, 2007, the ABA sent a letter to the House Judiciary Subcommittee on Commercial and Administrative Law in connection with its hearing on the second anniversary of BAPCPA. In its letter, the ABA reiterated its strong opposition to the attorney liability provisions in BAPCPA and urged the Subcommittee to support new ABA-crafted legislation that would repeal these harmful provisions. The ABA and its allies also met several times with House and Senate Judiciary Committee staff earlier in the 110th Congress in an effort to generate support for the ABA draft bill. During the second session of the 110th Congress this year, the ABA and its state and local bar allies will continue to encourage Congress to repeal all three of the attorney liability provisions in BAPCPA, either through stand-alone legislation similar to the ABA’s draft bill or as part of a larger “technical corrections” bill. To review the ABA's draft bill, previous ABA letters to the House and Senate, and other related materials, please see ABA Resources on Bankruptcy Attorney Liability (PDF).

• The ABA’s draft bill would reverse the harmful provisions in P.L. 109-8 that require the debtor’s attorney to certify the accuracy of the debtor’s schedules, under penalty of harsh court sanctions. While existing federal rules already require all lawyers to certify that their pleadings are supported by the facts, Section 102 of the new law creates a harsher standard just for debtors’ bankruptcy attorneys. By holding these attorneys personally liable for the accuracy of their clients' schedules, Section 102 will force the attorney to hire private investigators and appraisers to verify this information, adding thousands of dollars to the cost of representing a debtor in bankruptcy. Any attorney who fails to take these costly steps—including pro bono attorneys—will face harsh sanctions if the client’s stated financial information proves to be inaccurate. Because of this provision, bankruptcy representation has become unaffordable for many debtors and many firms have stopped providing pro bono bankruptcy services altogether, resulting in many more pro se debtors overburdening the court system.


• The proposed legislation also would reverse the unjust provisions in P.L. 109-8 that require attorneys to certify the debtor’s ability to make future payments under reaffirmation agreements. Under the previous law, a debtor could choose to reaffirm certain debts—and retain liability for those debts—if the attorney certified that the decision was voluntary and would not create undue hardship for the debtor. By requiring the attorney to also certify the debtor’s ability to pay the reaffirmed debt, Section 203(a) of P.L. 109-8 has forced many attorneys to conduct costly audits of their clients’ finances—or to simply not represent debtors in this aspect of the bankruptcy case.


• The proposed legislation also would reverse the harmful provisions in P.L. 109-8 that require bankruptcy attorneys to identify and advertise themselves as “debt relief agencies” and comply with intrusive new regulations that interfere with the confidential attorney-client relationship. Sections 227-229 will interfere with the attorney-client relationship by prohibiting debtors' bankruptcy attorneys—and many non-bankruptcy attorneys—from giving clients proper pre-bankruptcy planning advice. These provisions also have had a chilling effect on debtors' attorneys by requiring their advertising materials to include awkward and misleading statements identifying them as "debt relief agencies." Since the law was enacted, a number of federal district and bankruptcy courts also have held these provisions to be unconstitutional under the First Amendment.


• The key remedial provisions in the proposed legislation are strongly supported by legal groups throughout the country. These reforms have been endorsed by many statewide bar associations including those in Arizona, Arkansas, Illinois, Iowa, Maryland, Missouri, Minnesota, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Utah, Vermont, Virginia, Washington and Wisconsin.


• The proposed legislation would correct the problems created by the bankruptcy attorney liability provisions in P.L. 109-8 in a fair and equitable manner. Instead of unfairly punishing attorneys who provide legal services to debtors in bankruptcy, the draft bill would replace the attorney liability provisions in P.L. 109-8 with new language instructing the courts to vigorously enforce existing Bankruptcy Rule 9011 when misconduct by any attorney or party in the case is shown. The draft bill would reduce fraud and abuse in a far more effective and equitable manner while eliminating the harmful effects caused by the attorney liability provisions of P.L. 109-8.

The ABA believes that primary regulation and oversight of the legal profession should continue to be vested in the highest court of the state in which the attorney is licensed and in the federal and state courts in which the attorney practices. The ABA opposes any federal laws or regulations that would preempt or interfere with existing court rules protecting the confidential attorney-client relationship, including the provisions in P.L. 109-8 that increase the liability and administrative burdens of bankruptcy debtor attorneys. The ABA's views on the bankruptcy attorney liability provisions in the new law are outlined in more detail in its recent ABA Fact Sheet (PDF).