I know this is old news to most bankruptcy lawyers, but it dovetails nicely with a post from last week about an upside down world, where changes to US bankruptcy law intended to aid lenders by making it harder for consumers to declare Chapter 7 liquidating bankruptcies, have resulted in hurting both consumers and lenders. Another casualty of those "reforms" is a group that runs neck-in-neck with al-Qaeda operatives for the top spot on the "most loathed" list: lawyers.
In a town [Boston ] where there is hardly any shortage of lawyers, finding representation in one type of matter has become increasingly difficult: personal bankruptcy.
Congress' revision of the federal bankruptcy law, which took effect in the fall of 2005, has scared off many lawyers who previously included personal bankruptcy in their repertoire of services. The reason: They might be on the hook if statements about their clients' assets or ability to pay off debts turn out to be untrue.
The provisions -- widely seen by the legal establishment as an intrusion of the attorney-client relationship -- have made personal bankruptcy cases a more time-consuming affair; among those who still do it, the going rate for a routine Chapter 7 filing has risen to about $1,500 from $1,000. But many lawyers fear they will be made to pay -- literally -- if their clients mislead them about their finances. The two factors have combined to create a shortage of qualified attorneys willing to take on such work, either for a fee or on a pro bono basis.
The law of supply and demand might lead the casual observer to conclude that a shortage of qualified of lawyers means those who are left, and who have the moxie (and malpractice insurance) to handle Chapter 7 work, are inundated. Alas, that's not the lay of the land(mine) that is consumer bankruptcy law practice these days.
The impact of that shortage has been blunted so far by a steep drop-off in consumer bankruptcy work, resulting from a perception that the new law raised the bar on Chapter 7 filings. But the numbers have been creeping back up, with lawyers predicting that the developing crisis in sub-prime mortgages and an uncertain economy will bring filings to pre-2005 levels within a year or two.
In Beantown, some of the slack is being taken up by "Big Law" going all "pro bono" on us. Unfortunately, the well-intentioned may be subjecting their firms to the very liability that has scared off more mercenary sharks.
Under the new law, debtors' attorneys, not just debtors, must certify the accuracy of all petitions and schedules. In cases where a debtor chooses to honor some debts, the lawyer must vouch that "the debtor is able to make the payment." The code specifically requires an attorney to perform a "reasonable investigation into the circumstances that gave rise to the petition, pleading or written motion," and the attorney must be convinced those assertions are "well grounded in fact."
Although the article notes that the American Bar Association has discovered no cases where lawyers have been assessed a penalty under this provision of bankruptcy law, you have to remember that the ABA's attention might have been diverted by its quest to free detainees at Gitmo with writs of habeas corpus, and the ever-popular campaign to save baby seals from the annual arctic "let's beat a seal's brains out" gore-fest, so the ABA might not be the most reliable watchdog.
It's likely that the pro bono lawyers are not shielded from liability, any more than they would be if they got paid. As my father used to tell me, "No good deed goes unpunished." I blieve that's an article of natural law.
No, I think that when faced by a crisis of this nature, especially in Boston, the only sane solution is summed up in two sweet words: "Denny Crane."
You hear the one about the fella who died, went to the pearly gates? St. Peter lets him in. Sees a guy in a suit making a closing argument. Says “who’s that?” St. Peter says “Oh, that God. Thinks he’s Denny Crane.”--Denny Crane, Boston Legal, January 16, 2005.
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