POST
BAPCPA
Hersh v. U.S., 347 B.R. 19 (N.D.Tex. 2006) Godbey,
District Judge DEBTORS' ATTORNEYS ARE "DEBT RELIEF
AGENCIES" UNDER 11 U.S.C. § 101(12A)
BAPCPA PROHIBITION AGAINST ATTORNEYS ADVISING CLIENTS
TO INCUR NEW DEBT PRIOR TO FILING BANKRUPTCY IS
UNCONSTITUTIONAL
BAPCPA REQUIREMENT THAT ATTORNEYS PROVIDE CERTAIN
DISCLOSURES IS CONSTITUTIONAL § 101(12A), § 526(a)(4), §
527
Dallas attorney Susan B. Hersh filed this action to have
certain portions of BAPCPA declared unconstitutional.
Held: The definition of debt relief agency at § 101(12A)
lists 5 exceptions, none of which refers to attorneys.
Had Congress meant to exclude attorneys from the
category of debt relief agencies it would have been
explicit in its list of exclusions. Hence, attorneys are
debt relief agencies.
However, the provision found at § 526(a)(4) which states
"A debt relief agency shall not ... (4) advise an
assisted person or prospective assisted person to incur
more debt in contemplation of such person filing a case
under this title . . ." bans bankruptcy attorneys from
advising their clients to take on additional debts 'in
contemplation' of bankruptcy. Thus, section 526(a)(4)
prevents lawyers from advising clients to take actions
that are lawful, even under BAPCPA."
The opinion gives examples of taking on more debt would
be lawful, including refinancing a mortgage to get a
lower interest rate, taking on secured debt such as a
loan on an automobile that would survive bankruptcy and
also enable to the debtor to continue with employment.
"Thus, § 526(a)(4) prevents lawyers from giving their
clients their best advice."
"Thus, section 526(a)(4) of the BAPCPA imposes
limitations on speech beyond what is 'narrow and
necessary'" under a constitutional test.
Hersh also argued that § 527 violates the First
Amendment. Held, Section 527 which requires the attorney
to provide certain disclosures "advances a sufficiently
compelling governmental interest and does not unduly
burden either the attorney-client relationship or the
ability of a client to seek bankruptcy."
In re
Thomas, 342 B.R. 758 (S.D.Tex. 2006) BAPCPA IMPOSES NEW
ACCOUNTABILITY ON DEBTORS AND ATTORNEYS RULE 9011
BAPCPA imposes new responsibilities on debtors and their
counsel for omitted and false data on schedules, and
imposes on schedules the same standards as for other
pleadings.
Debtor criticized for not informing her attorney of
student loan lawsuit and attorney for student loan
agency of her bankruptcy, and debtor's attorney
criticized for not making sufficient inquiry into
debtor's creditors to discover the lawsuit.In re
Moser, 347 B.R. 471 (Bkrtcy.W.D.N.Y. 2006) CARL L. BUCKI,
Bankruptcy Judge. ATTORNEY'S OVERSIGHT JUSTIFIED
DEBTOR'S FAILURE TO FILE COPY OF TAX RETURN WITH TRUSTEE
NO LATER THAN 7 DAYS BEFORE MOC § 521(e)(2)(A),
521(e)(2)(B)
The court held that the debtor's attorney's oversight in
failing to file tax return with trustee was
"circumstance beyond the control of the debtor, thus
avoiding dismissal of case. The code provides that in
the event of failure to file the return (or transcript
of return) with the trustee as required shall result in
the case being dismissed unless the debtor can persuade
the court the failure was due to "circumstances beyond
the control of the debtor."
In this case the trustee did not receive the documents
prior to the meeting of creditors. The debtor's attorney
attempted to present them at the meeting, but the
trustee declined to accept them and subsequently moved
to dismiss the case. The attorney testified that the
debtors had given him the copies of the returns in a
timely manner but that he neglected to file them with
the trustee.
The court recited the rule that generally the acts of
the attorney are imputed to the client. The court
observed "The Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 has created many new pitfalls for
practitioners of bankruptcy law. Even excellent
attorneys will encounter an enhanced risk for
inadvertent delay." The court cited in agreement the
rulings in In re Grasso, 341 B.R. 821 (Bkrtcy.D.N.H.
2006) and In re Merrill, 340 B.R. 671 (Bkrtcy.D.N.H.
2006).
WARNING: PRE-BAPCPA: Musser v. Provencher 28
Cal.4th 272 (2002) (12/26/02) BANKRUPTCY ATTORNEY LIABLE FOR GIVING DIVORCE ATTORNEY ADVICE SHE COULD PROCEED WITH MOTION
FOR SUPPORT WITHOUT RELIEF FROM AUTOMATIC STAY
On a California court case an attorney representing the wife
in a divorce filed a motion for spousal support. Before the
motion was heard in state court the husband filed bankruptcy.
The divorce attorney called a bankruptcy lawyer (not the
husband's) to file a motion for relief from stay allowing the
hearing on support to proceed. The bankruptcy attorney advised
her that she could proceed without relief from stay, as long
as the support order was not made final until relief from stay
was granted. Divorce attorney proceeded with hearing. Debtor
sought damages against wife for violation of the stay, who in
turn sued her divorce attorney for malpractice, who in turn
sued the bankruptcy attorney she had consulted. Bankruptcy
attorney was held liable.
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