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Washington-John K. James of Warner Robins, Ga., softly insists that he is a bankruptcy attorney. The fact that the new federal bankruptcy law requires him to identify himself as a debt-relief agency, he says, is neither accurate nor fair, and it sticks in his craw like a burned batch of grits. Late last fall, he filed a “motion to determine attorney status” with the chief bankruptcy judge for the Bankruptcy Court for the Middle District of Georgia. James carefully argued that the debt-relief agency provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), as applied to attorneys, violate the First Amendment. He also claimed that the law’s structure and legislative history indicate Congress did not intend the term to apply to attorneys. James had some hope of success because just two weeks earlier, the chief bankruptcy judge in the Southern District of Georgia had ruled sua sponte, of his own accord, that attorneys are not debt-relief agencies under the act so long as their activities fall within the scope of the practice of law and do not constitute a separate commercial enterprise. But early last month, the Middle District of Georgia chief judge ruled against James, not on the merits, but on jurisdictional grounds: He lacked standing. Debtor attorney Jay Jump of Seattle’s The Jump Law Group, feels James’ pain. Last week, he argued a similar motion and lost on the same jurisdictional grounds: lack of standing. Despite losing that battle, Jump said, “I think we’ll win the war eventually.” The “troops” are mobilizing, but not in an organized fashion. Similar motions and challenges have been filed in Pennsylvania, Kentucky, North Carolina and Minnesota. And the National Association of Consumer Bankruptcy Attorneys, in conjunction with the Connecticut Bar Association, hopes soon to file a constitutional challenge to the debt-relief agency provisions. “The entire act limits the scope of all attorneys. It’s not just bankruptcy attorneys. And it’s an ongoing trend of limiting the attorney’s ability to speak candidly with their clients,” said Chad Wm. Schulze of Milavetz, Gallop & Milavetz in Edina, Minn., who will argue the Minnesota challenge in federal district court on April 4. Milavetz, Gallop & Milavetz v. U.S., No. 05-CV-2626JMR/FLN. “We have been trying to get hold of attorneys nationwide and we’re dealing with a number of law journals, the [American Bankruptcy Institute] and others to get out information to anybody who wants to take part in this. This is not just our fight; it’s a fight across the country.” Gatekeeping issues While many bankruptcy attorneys are unhappy with the debt-relief agency provisions in BAPCPA, judges are increasingly voicing their unhappiness with another provision in the new law: the requirement that debtors get credit counseling before filing their petitions. The two issues are at the gatekeeping level in the bankruptcy process, so it is not surprising that they have surfaced early, said David L. Rosendorf, a shareholder at Miami’s Kozyak Tropin & Throckmorton whose practice is dedicated to commercial bankruptcy and complex commercial and class action litigation. “Both provisions are at the front end of the process,” explained Rosendorf, who also is tracking a variety of BAPCPA issues at the American Bankruptcy Institute’s Web log. “Credit-counseling cases are coming up now because failure to get counseling is a barrier to eligibility to file-so it has become the necessary first step.” Clarification urgent For attorneys, clarification of the debt-relief agency provisions is urgent because of civil and criminal penalties for failure to comply with disclosure and advertising requirements as well as their needing to know what can and can’t be said to clients, he and others explained. Under BAPCPA, a “debt relief agency” is “any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer.” An assisted person is someone with assets of less than $150,000. Anyone meeting the definition of a debt-relief agency must advertise as such. He or she is required to provide a number of written notices, including one stating that a debtor does not require the assistance of a lawyer. There also are restrictions on advice that can be given. For example, a debt relief agency cannot advise an assisted person to incur additional debt. “Anytime an attorney knows a bankruptcy petition is out there, they are hindered in how they can advise their clients,” said Schulze. “It really binds more than just the bankruptcy attorney,” he said. “For example, if a client comes in and you’re a personal injury attorney and the client says, ‘Well, I need this surgery but at same time I’m declaring bankruptcy.’ You can’t tell them to go forward with the surgery because you’re telling them to incur more debt. “For the attorney who traditionally practices bankruptcy, you used to be able to tell a client, for example, ‘You don’t need a bankruptcy if you take out a new mortgage on your house.’ But, as a debt-relief agency, you can’t advise them to take on new debt.” David A. Greer, a partner in Williams Mullen in Norfolk, Va., agreed with Schulze’s analysis, adding that the debt-relief agency provisions also appear to include creditor’s lawyers as well as non-bankruptcy attorneys. Greer, a creditor’s lawyer and vice chair of the Consumer Bankruptcy Committee of the American Bar Association, was part of the ABA lobbying team that tried, unsuccessfully, to prevent the provision from applying to attorneys. Congress, he said, clearly intended that it apply. “If you are advising someone going through a divorce, often they have financial problems,” he said. “It is certainly giving good broad service for the lawyer to say, ‘You have financial problems; here are your options, including bankruptcy.’ Once the lawyer does that, he is giving bankruptcy advice, and if a client qualifies as an ‘assisted person,’ suddenly the lawyer drops into this debt-relief agency category. I’ve seen it in advising clients of estate-planning issues where maybe one of the children has debt problems. “I think it certainly raises an issue right out of the box because of the restriction on what you can and can’t tell your clients,” said Greer. “It’s a free speech issue. It could apply to somebody who is giving a talk or publishing a newsletter under the right circumstances.” Rosendorf of Miami’s Kozyak Thornton said, “My firm is not a consumer bankruptcy firm. We do business bankruptcies. We don’t do consumer cases except we handle some on a pro bono basis. The debt-relief agency provisions have even given us pause at taking on these pro bono cases.” In ruling last fall that attorneys are not debt-relief agencies, Georgia Southern District Chief Judge Lamar W. Davis said he did not believe Congress intended to include them. The U.S. trustee for that district has appealed the ruling in federal district court. The government contends that the language and legislative history clearly indicate that attorneys are covered. It also notes Congress has regulated attorney activities in a number of other areas, including securities law. In re Attorneys at Law and Debt Relief Agencies, No. 05-00400. Greer and others do not believe that Davis’ intent argument will prevail. They think a First Amendment challenge to the provisions is more promising. First amendment challenge Henry J. Sommer, president of the National Association of Consumer Bankruptcy Attorneys (NACBA), said that the NACBA’s suit will challenge the provisions on First Amendment and other grounds. He noted that constitutional scholar Erwin Chemerinsky of Duke Law School has assisted the NACBA and, in an analysis of the provisions, has written that: “Preventing lawyers from giving important, lawful information to their clients cannot be reconciled with the First Amendment.” There is also a compelled speech argument based on having to advertise, “we are a debt-relief agency and we help people file bankruptcy cases when we don’t do that,” said Sommer, adding, “also to the extent it requires you to give certain disclosures that are not necessarily true.” Greer noted the ABA is increasingly concerned that bankruptcy lawyers will leave this practice area. “The ones who leave are usually the good ones. There also will be discussion now about whether malpractice insurance will cover debtor’s work because of these changes.” Unhappy judges Unlike the debt-relief agency provisions, there have been no challenges to BAPCPA’s credit-counseling requirement. Judges, according to bankruptcy lawyers and scholars, are applying the requirement, but many are unhappy with the result. Under this provision, individuals are ineligible for relief under any chapter of the Bankruptcy Code unless, within 180 days of the bankruptcy filing, they received “an individual or group briefing” from a nonprofit budget- and credit-counseling agency approved by the United States trustee or bankruptcy administrator. The requirement may be waived under very limited circumstances. The limited waivers recently have angered and frustrated some judges who have been forced to dismiss petitions, often filed by unaware pro se petitioners. In December in In re Valdez, 2005 WL 3526495, Bankruptcy Judge A. Jay Cristol of the Southern District of Florida questioned Congress’ aims in enacting the requirement. “Is it the intent of Congress that poor, ignorant persons who do not know the law and cannot afford to obtain the advice of counsel are to be denied [the] protection and assistance of the Bankruptcy Code [that are] available to more affluent and better-educated persons?” he asked. Also in December, Judge Frank Monroe of the Western District of Texas, who was forced to dismiss a petition even though the debtors completed counseling after filing, called the requirement “inane,” and said that BAPCPA was enacted by Congress “to make more money off the backs of the consumers in this country.” In re Sosa, 2005 WL 3627817. “There is a general perception, which some judges have voiced more strongly than others, that this is not something intended to weed out bad debtors but to discourage bankruptcy filings,” said Rosendorf. The challenges to the debt-relief agency provisions and the unhappiness with the credit-counseling requirement are only the beginning of controversy over the many problems and, many contend, flaws in BAPCPA. “People only now are starting to realize that the whole political process was flawed,” said Steve Jakubowski of Chicago’s The Coleman Law Firm and author of the Web log: www.bankruptcylitigationblog.com. “It’s in many ways like the pig being swallowed by a snake. You have this big set of problems at the outset of the cases and then all of those issues and all of the flaws in the code have to get hashed out-the very problems that the experts said Congress was creating. But Congress didn’t consult the experts. Why?”

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