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A minefield of new obligations, responsibilities and liabilities awaits bankruptcy attorneys this week as a controversial law directly impacts the attorney-client relationship, warn practitioners, academics and bar groups. Today, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 kicks in, obliterating a generation of precedent in bankruptcy law. Although the effect on debtors has been well publicized, resulting in a surge in filings in recent weeks as savvy debtors filed ahead of the deadline, the repercussions for attorneys and their practice is at least as dramatic, experts say. Suddenly, attorneys will be personally liable for the accuracy of their clients’ petitions. They will be required to advertise themselves as “debt relief agencies.” They will be barred from telling clients certain pertinent information, such as the fact that it is legal to incur new debt on the eve of bankruptcy. And they will be required to give advice that some practitioners say is directly contrary to other sections of the U.S. Bankruptcy Code, potentially pitting their ethical obligations against their legal responsibilities. Corinne Cooper, professor emerita from the University of Missouri, and an authority on the implications of the new law for attorneys, said one of the most “pernicious aspects” is the fact that the 500-plus page amendment to the Bankruptcy Code is sprinkled with sometimes hard-to-find “booby traps” for unwary lawyers. She has spent months scouring the dry and often imprecise text of the bill for a book she is helping to write for the American Bar Association, “Attorney Liability in Bankruptcy.” Cooper said she discovers new pitfalls regularly, and suspects that lawyers will uncover even more as they practice under the measure. “In the middle of this 500-page bill, is a little thing here to trap a lawyer, and a little thing there, and the more you read it, the more you find,” Cooper said. “The bill is exceedingly poorly drafted, so even if you think you might understand what you might be obligated to do under it, it is not clear at all. And the penalties for not understanding exactly what you should be doing are extremely strict.” For instance, Cooper said, the law requires attorneys to tell clients to value their assets at replacement value which, of course, is probably not the actual value of the property. At the same time, the attorney is supposed to certify that the debtor’s petition is accurate, which it will not be if the client follows the lawyer’s advice and lists property at replacement value. “It is an impossible conundrum for the lawyer,” said Cooper, co-author with Catherine E. Vance of an e-book, “Nine Traps and One Slap: Attorney Liability Under the New Bankruptcy Law.” She added, “Maybe bankruptcy attorneys need to start talking to their clients in the way criminal lawyers talk to their clients — ‘Don’t tell me if you are going to … ‘” — an approach she considers “terrible lawyering” but inevitable under the new law. LIABILITY PROVISIONS In general, the new attorney liability provisions distill to three broad categories: � Bankruptcy attorneys will be required to certify the accuracy of their clients’ schedules and lists of assets, or face sanctions. Existing federal rules require attorneys to certify that their pleadings are factually supportable. Section 102 of the new law holds attorneys personally liable for the accuracy of their clients’ filings. It requires the attorney to perform a reasonable probe into the circumstances resulting in the bankruptcy petition and to certify that the pleadings are grounded in fact and warranted under law. � Debtors’ attorneys will have to certify that the debtor has the ability to make payments under a reaffirmation agreement. Under the law, an attorney is in a position of having to certify that a person with a proven inability to pay debt can cover a reaffirmed debt. If the attorney guesses wrong, he or she could be forced to pay the creditor whatever the debtor owes. � Attorneys will have to identify themselves, and advertise themselves, as “debt relief agencies” and comply with a wide array of regulations covering such agencies. Under this provision, attorneys who concentrate on bankruptcy, as well as those who dabble in bankruptcy law, become “debt relief agencies.” Under Section 226(a), a lawyer is a debt relief agency if he or she: provides “bankruptcy assistance;” to an “assisted person” (a consumer with nonexempt property worth less than $150,000); for “the payment of money or other valuable consideration, or is a bankruptcy petition preparer.” IMPACT ON PRACTICE Attorneys and bar groups nationwide are bracing for an unknown concussion as courts struggle to figure out not only how to apply the law, but how to define hazy provisions. Many experts predict that bankruptcy law will again become a niche or boutique speciality with fewer attorneys willing to add it to their practice. They say the impact will be felt greatest in the smaller and more rural areas, where there is not enough debtor work to support a full-time bankruptcy practice and lawyers either file bankruptcies as part of a broad general practice, or not at all. Moreover, under the new law a bankruptcy attorney, as a “debt relief agency,” is required (see �527) to advise clients that a lawyer may not be necessary and they can represent themselves or work with a document preparer. “I have no doubt at all that the motivation was to get bankruptcy lawyers to stop practicing consumer debtor bankruptcy, to raise the cost of representation so that more people are under-represented and provide less access to legal counsel,” Cooper said. “The sad thing about this is it was possible to have a pro se bankruptcy before. If you had a very simple case, it was possible to navigate the process. The process now is so incredibly complex, and the slightest infraction will result in dismissal of your case.” Proponents of the new law say it was drafted to cut down on fraud and misrepresentation, especially where a lawyer is complicit or blissfully ignorant of a client’s manipulation of the Bankruptcy Code and abuse of the “fresh start” principle. Michael Moscowitz of Weltman & Moscowitz in Manhattan said he may drop Chapter 7 from his bankruptcy practice. The new law is aimed to discourage Chapter 7 liquidations and to encourage, to the extent that it encourages any bankruptcy, Chapter 13 repayment plans. “After the change in the law, it is unlikely that I will be filing Chapter 7 bankruptcy petitions, not really because of the liability issue, but because of the amount of work involved versus the amount you can potentially charge,” Moscowitz said. “The biggest impact will be on consumers who won’t be able to receive quality bankruptcy services. I think it is the consumers who are really going to lose.” Moscowitz also questioned whether attorneys would be willing, since their potential personal exposure is magnified, to handle a bankruptcy case pro bono where they not only forego compensation but risk personal liability. Others have said the new law is a strong disincentive for bankruptcy attorneys to offer their services for free to people victimized by a natural disaster, such as Hurricane Katrina. ADDITIONAL EXPENSE Jeffrey Freedman, who has a high-volume, 15-office consumer law practice based in Buffalo, N.Y., has contracted with LexisNexis, a popular legal research engine, to screen clients. He is also scouring the federal PACER (Public Access to Court Electronic Records) system to see if a prospective client has ever filed bankruptcy in another jurisdiction. Additionally, Freedman, a former Chapter 7 trustee, said, if a client offers an implausible story — for instance, claiming they live in an expensive house with almost no furnishings — he will hire an appraiser to protect himself. “Sometimes clients won’t tell us about all the real estate they own, or they forget there is a car in their name that belongs to somebody else, or maybe they forgot that their name is on their mother’s house,” said Freedman. “If a client is not upfront with us, we decline to represent them.” All of that checking, of course, will cost money, which will either be absorbed by the law firm or passed along to the consumer. “We are going to try to do this without a huge increase in fees,” Freedman said. “There will be increases, but we don’t want to price clients out of the market. We have to do more work, and we have to figure out a way to be more efficient.” New York State Bar Association President A. Vincent Buzard said the state’s largest organization of lawyers has serious reservations about the law and its impact on day-to-day practice. He said the organization has been holding seminars statewide to help attorneys get a handle on their responsibilities, and expects to propose amendments after lawyers have experience working under the new strictures. “Our fears are well founded, but at this point hypothetical,” said Buzard, a partner at Harris Beach in Rochester, noting that the law will take effect today whether attorneys and judges like it or not. “So the best thing we can do at this point is gather information over the next few months and, when we see the scope of the harm, propose changes,” he said. TIME TO ADJUST Martin A. Mooney of Deily Mooney & Glastetter, a creditors’ firm in Albany, predicts that attorneys for creditors will scrutinize cases “to see if the debtor’s attorney has satisfied all these additional obligations” and, where they have not, use those lapses for leverage. However, he also expects bankruptcy judges, who overwhelmingly opposed the new law, will be inclined to cut debtors attorneys some slack, at least in the beginning. “Judges simply hate the new law, and while I don’t want to say they will look the other way, I do think they will understand that it will take time for debtors’ attorneys to get up to speed,” Mooney said. “I don’t think they will take a hard approach in the beginning, and I don’t think the U.S. Trustee is going to take a hard approach in the beginning.” On the other hand, credit card companies, banks and business groups invested eight years of lobbying and millions of dollars in campaign contributions in effecting these changes to the Bankruptcy Code, and some observers expect them to push hard to test their new powers. “Creditors know they have a lot more rights,” said Mooney, whose firm largely represents secured creditors, often in the auto industry. “A lot of effort went into this new code if you are a lobbyist for the creditors, and they may feel like they need to get something out of it. There’s no question it is poorly written, that there is more work for debtors’ attorneys, that there will be higher fees for debtors and that there will be a lot more pro se cases.” Wednesday, at the Northern District of New York U.S. Bankruptcy Court in Albany, debtors with petitions prepared by a document filing outfit were waiting in line to file their papers before the new law takes effect, attorneys said. Other jurisdictions nationally report a huge increase in filings over the past month, double the norm in some regions. But many attorneys say they are no longer accepting cases that must be rushed through before today’s deadline — leaving debtors without counsel over the critical final days before the Bankruptcy Abuse Prevention and Consumer Protection Act takes effect.

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