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Amid the commotion over the fairness of the bankruptcy reform bill to consumers, credit card companies and anti-abortion protesters, one group that stands to be punished by the legislation has received little attention, legal experts say. The bill, called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2002, is implicitly hostile to consumer bankruptcy lawyers, say judges, attorneys and academics. If the legislation passes after Congress returns in September, it could have unintended consequences, including forcing many conscientious lawyers to abandon consumer bankruptcies. Hardest hit would be the roughly 5,000 to 10,000 lawyers who devote most of their practice to consumer bankruptcies. “I can tell you it’s designed to chill the consumer bankruptcy practice. I don’t know how to reach any other conclusion,” says Bankruptcy Judge Randall J. Newsome of the Northern District of California in Oakland. Among other things, lawyers would have to conduct an investigation into their client’s financial circumstances. Attorneys would then have to certify that the inquiry indicates nothing is amiss with the schedules that list such things as assets, income, expenses, creditors and exempt property. Under existing bankruptcy law, attorneys are not required to sign or certify the accuracy of schedules. Attorneys could face civil penalties if an audit shows schedules are incorrect. “It’s mean-spirited. The basic assumption is consumer bankruptcy lawyers are crooks,” says James P. Caher, a bankruptcy lawyer in Eugene, Ore., who is writing “Personal Bankruptcy for Dummies.” “They want to paint debtor’s lawyers as sleaze bags. There are some incredibly offensive aspects to it.” ‘DEBT RELIEF’ Particularly insulting to lawyers and judges is a provision that would require attorneys who give bankruptcy advice to say that they are “debt relief” agencies. Lawyers must “clearly and conspicuously” state in any advertisement, seminar, e-mail or mailing: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” Lawyers say the provision puts attorneys in the same category with nonlawyers who type out bankruptcy forms for $125 or less. Such so-called bankruptcy petition preparers are prevalent in areas where there are high bankruptcy filings, including New York, Florida and California. These preparers, who aren’t permitted to give legal advice, have run afoul of the U.S. trustees and the courts. In May, a Pomona, Calif., preparer was barred from drafting petitions after misrepresenting a consumer’s income. Trustees also complain that many filings handled by the preparers contain errors. “To be lumped together with bankruptcy petition preparers is demeaning,” says Henry J. Sommer, vice president of the National Association of Consumer Bankruptcy Attorneys and of counsel with Miller Frank & Miller in Philadelphia. Shayna M. Steinfeld of Steinfeld & Steinfeld in Atlanta, says the “canned government language” regarding debt relief could make it difficult for lawyers who represent both consumer debtors and creditors in their practice. “It’s going to force lawyers to choose,” she says. “Unfortunately, we’re going to lose some consumer bankruptcy lawyers.’ Many of these lawyers are in the dark about the significance of the legislation, the experts say. One reason is the bill’s tortured history, says William H. Schorling, a shareholder with Klett Rooney Lieber & Schorling in Philadelphia. Schorling worked to modify the bill on behalf of the American Bar Association. Former Rep. William McCollum, R-Fla., first introduced the bill in 1997 in the House. Rep. George Gekas, R-Pa., introduced legislation that blended in McCollum’s bill in 1998. Sen. Charles Grassley, R-Iowa, introduced a version in the Senate in 1998. A slightly revised version, which is the basis of the current bill, was introduced by Grassley in 2001. In the course of three congressional sessions it has seemed nearly dead at times and, at other times, poised for passage. In 2000, it was sent to President Clinton and was pocket vetoed. Most recently, most thought the bill would pass before the August recess and be signed by President Bush. “They took the attorney liability provision out, at one point, then put it back,” says Schorling. “We just missed it.” Another reason there hasn’t been an uproar from consumer bankruptcy lawyers is that the bill is long and complex. The 465-page bill has been described as “painful” to read because of the tortured language and the need to cross-reference with the current law. The consumer section alone is more than 200 pages. One judge described it as “something thrown out of a speeding car.” While many say they believe the bill is designed to punish so-called bankruptcy mills, it could, in fact, drive conscientious practitioners into retirement or other areas of the law, lawyers say. “The law sends a message to lawyers: ‘We don’t like what you do.’ It contains a number of things that are frightening,” says David A. Skeel Jr., a law professor at the University of Pennsylvania Law School and author of “Debt’s Dominion: A History of Bankruptcy Law in America.” An aide to Sen. Patrick J. Leahy, D-Vt., chairman of the Senate Judiciary Committee, says that he and Sen. Joseph R. Biden Jr., D-Del., worked hard to soften the language involving sanctions against attorneys. As for the objectionable provisions involving attorneys, the aide says the senators had to pick their battles. Much of their efforts were on correcting abuses of consumer debtors, he says. Nevertheless, now that the bill has stalled, the ABA will continue to lobby to modify the bill, Schorling says. In the past five years, consumer bankruptcies have risen dramatically, leading many in the credit card and banking industries to believe consumers have been abusing bankruptcy. In a Chapter 7 — also known as a straight bankruptcy — unsecured debts can be wiped out and individuals can get a fresh start in four to five months. In Chapter 13, a debtor repays unsecured debts either in full or in part over a three- to five-year period under the supervision of a trustee. Chapter 7 filings particularly have spiraled upward. In the year ending March 31, these bankruptcies were up 23 percent from 1997, according to the Administrative Office of the U.S. Courts. ATTORNEY AS AUDITOR Under the proposed “needs-based bankruptcy” law, consumer bankruptcy attorneys would be required to investigate a client’s financial situation to determine whether it met the standards for a Chapter 7 petition or for a Chapter 13 plan. “It’s making the attorney auditor and accountant,” says Steinfeld. Consumers whose average income during the six months prior to filing was above the median in their state would be put to a means test to determine if they were “abusing” Chapter 7. The test would apply a formula based on Internal Revenue Service standards. In testing their repayment ability, debtors could deduct specific dollar amounts for food, clothing, transportation and so on. Reasonable expenses, such as health insurance and union dues, are allowed, as is all secured debt, such as home loans and automobile loans. A presumption of abuse of Chapter 7 would be created if the test showed either that: � The person was able to repay $10,000 over five years, or $166.67 a month. � The person has $100 or more a month left over after paying expenses and that is enough to pay 25 percent of debts over five years. Debtors could seek to rebut the presumption in bankruptcy court. If they were found to be abusing Chapter 7, they could be denied the right to file for bankruptcy altogether or could voluntarily convert to a Chapter 13. The lawyer’s signature on filings would “constitute a certification” that the schedules, statements or lists are correct. If a filing was found to be incorrect, the attorney could face a civil penalty. For consumer bankruptcy attorney Thomas J. Yerbich, with the Law Office of Thomas J. Yerbich in Anchorage, Alaska, the question then is: What is a reasonable inquiry? “Does it mean I have to go in their back yard and dig for cans of cash?” asks Yerbich. “Do I have to go through their houses? It bothers me that there’s a feeling on behalf of Congress that those of us who represent consumer debtors are conspiring to cheat these underearning credit card companies.” What’s more, it’s often difficult to sort out the finances of an individual in financial distress, says Sommer, of the bankruptcy lawyers association. Clients dump paper bags filled with bills, collection notices and pay stubs on a lawyer’s desk. The attorney is asked to sort it all out. Given the disarray of a client and the level of detail on schedules and statements, the margin for error increases, lawyers say. G. Ray Warner, a professor at the University of Missouri-Kansas City School of Law and scholar in residence at the American Bankruptcy Institute, says the provision has the potential to put the lawyers’ own personal interest in conflict with the interests of the clients. “It changes the role of an attorney from an advocate to an insurer of a client’s filings,” says Warner. Initially, the bankruptcy lawyers faced even greater liability in the bill. Until recently, the law said lawyers “shall” be sanctioned if abuses were found. That has since been changed to “may.” The concession was won by the lobbying efforts of the ABA. If it had not been changed, consumer bankruptcy lawyers could potentially be uninsurable, Steinfeld says. But the change has some experts worried that the sanctions could be unevenly applied. Districts that have particularly aggressive U.S. trustees could find themselves facing civil penalties. Lawyers unpopular with judges might also face greater scrutiny, some say. Sanctions, which aren’t spelled out in the bill, could also vary among districts. “For example, I might be very conservative about sanctions,” says U.S. Bankruptcy Judge William H. Brown of the Western District of Tennessee in Memphis. “Another judge may expect lawyers to walk the line. One of the purposes of this bill was to create uniformity. Well, it’s not going to happen.” The new law would likely more than double the amount of documentation needed for filing. Requirements for ongoing record-keeping are also greater. As a result, some attorneys have already calculated they will need to raise prices. Yerbich says he plans to increase his fees by about 20 percent. He normally charges $1,250 for a Chapter 7, which includes the $200 filing fee. It covers all or 90 percent of the costs. Yerbich anticipates boosting the price to $1,450 or $1,500. Higher fees, in turn, could force some consumers to switch to nonlawyers who prepare bankruptcy petitions for modest fees. Pro se cases could potentially bring the bankruptcy system to a grinding halt, experts say. “Bankruptcy is very technical,” says Steinfeld. Another impact could be the loss of lawyers who do bankruptcies on a pro bono basis. “It’s all risk and no benefit,” says Warner of the University of Missouri-Kansas City School of Law.

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