Q & A about the New Bankruptcy Law Amendments

(continued) Questions 22 - 31

22. What if a debtor has borrowed from his or her pension plan and is making monthly payments to pay that loan back to the pension plan. Do those payments get subtracted from "surplus"; or is a debtor paying back a loan to a pension plan not a reasonable and necessary monthly expense in Chapter 13? Contrast existing law and New Law:
    1. Most chapter 13 trustees take the position that paying loans back to your pension plan is NOT a reasonable and necessary expense, and so add those payments to the surplus that must be paid into the plan. The New Law changes that result in a way favorable to debtors. New Law 11 USC 1322(f) is added and states: "A plan may not materially alter the terms of a loan described in section 362(b)(19) [loan from pension plan] and any amounts required to repay such loan shall not constitute "disposable income" under section 1325."

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23. Are any of the New Law provisions retroactive, meaning do any of the New Law provisions apply to bankruptcy cases filed before April 20, 2005, the date Pres. Bush signed the amendments into law?
    1. Yes, but only a few of the New Law changes are retroactive, including (1) the New Law overrules the DePrizio preference case retroactively and (2) some changes to involuntary bankruptcy cases, 11 USC §303 are retroactive.

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24. Are any New Law provisions effective on dates other than retroactive, April 20, 2005 or October 17, 2005?
    1. Yes, a few New Law provisions have effective dates that appear to have been randomly selected, such as Chapter 12 (family farmer chapter) is permanently reenacted effective July 1, 2005. Most New Law Code books are annotated to show the effective dates of provisions. Check the annotations.

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25. ETHICS: Are there any malpractice issues relating to these various "effective on x date" issues?
    1. Yes, several:
       1. Its Negligence if you haven't learned the New Law, and therefore make mistakes, including recommending bky when no longer will solve financial problem of client, or where don't tell them they'll be thrown into 13 and they will be, etc.
       2. Duty of attorneys to inform clients which law will apply to their case, old or new and what that law provides.
       3. if the client retains you enough before the end of the 180 days that you reasonably should have been able to get the client's bky filed before the 180 day limit runs, which would mean they get the old law, and you don't, so they get the New Law, and the New Law adversely affects them, then you may be liable for malpractice for failing to get the case filed in time.

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26. ETHICS: How can you reduce this malpractice exposure of client claiming you were negligent for not getting client's case filed by Oct 17, 2005?:
    1. Don't take cases at the last minute before the 180 days expires;
    2. Don't take cases til you have learned the New Law;
    3. Put in your contracts when the 180 days is going to expire, and that if the client does not supply you with all info needed to prepare petition docs by Y date, you won't be able to get the case filed before Oct 17, 2005, with result client's case will be under new bad law, instead of being under the old good law, and that client agrees to this
    4. put in contract expressly that client is coming to you so close to deadline that you are NOT promising to get case filed before the 180 deadline expires, and that client by signing contract is agreeing to this.
    5. Make such disclaimer provisions IN BOLD, or underline, or both, so conspicuous
    6. Have a disclaimer provision in your contracts that says there are massive amendments to the Bankruptcy Code, most of which are effective October 17, 2005, and that because the statute is new it is not possible to predict how Courts will interpret it.

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27. ETHICS: Do you have to have a written contract for individual bankruptcy clients?
    1. Under nonbankruptcy law applicable to CA attorneys, which is CA Bus & Prof Code §6148 an attorney shall have a written contract, if it is forseeable that the fees will be over $1000 and the client is an individual. That hasn't changed, but the New Law , 11 USC §548(a)(1) requires a written contract for every bky individual debtor bankruptcy client, even if total fees less than $1000, because now consumer debtor bankruptcy attorneys will probably be held to be "Debt Relief Agencies" per New Law 11 USC §526, 527, 528, and definitions 11 USC §101(3)( "assisted person") and 101(12A) ("debt relief agency"). New Law section 528(a) requires that a debt relief agency "shall ...execute a written contract.. explaining the list of things stated in Section 528.
       1. Who gets a copy of the written contract?: Per New Law 11 USC 528(a)(2), you must provide the assisted person with a copy of the fully executed and completed written contract, which must specify what services you will provide and what the fees and charges are for those services, and what the terms of payment are.
       2. Should you want a written contract even if no such provision?: yes, to protect you, by specifying exactly what you are and are not going to do for the fee. Basic representation in Ch 7 is usually just analyze situation, prepare petition docs, and represent debtor at 341a and some law firms don't even include representing debtor at 341a meetings as a service provided for the basic Ch 7 bankruptcy legal representation fee, they send the debtors to 341a with NO representation
       3. What should contract say about work not covered by basic fee?: That will only do additional work if you and client sign an additional contract for that work and the client pays you the fee for that work agreed on in the contract, which is $X per hour for atty time, $Y per hour for paralegal time, plus reimburse all costs.

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28. ETHICS: Can you charge more if you are a board certified bankruptcy specialist?
    1. Being certified improves your chances of being awarded higher fees by the court, if you are working for the Trustee or Debtor in Possession (DIP) and so are being paid from bankruptcy estate, by fee application, and order of Court; because the New Law adds 11 USC 330(a) provides that in determining fees to be paid to professionals from the bankruptcy estate, the court shall consider "whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field".
       1. ETHICS: How about advertising that you are a bankruptcy specialist? You can only advertise you are a specialist if its true, meaning that you have to actually be certified as a bankruptcy specialist by either the CA state bar or by the American Board of Certification.
       2. ETHICS: How does being specialized affect malpractice liability? If you are certified as a bankruptcy specialist, which requires experience, recommendations, and passing detailed exams, and you hold yourself out as being a bankruptcy specialist, for malpractice purposes, specialists in an area are held to a HIGHER standard of practice than NONspecialist lawyers practicing in the same area

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29. What is a "debt relief agency"
    1. You are a debt relief agency, if you are a consumer debtor attorney. The New Law adds sections 526, 527 and 528 regarding "Debt relief agencies". "Debt relief agency" is defined at 11 USC §101(12A) as:
       • "(12A) The term "debt relief agency" means 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 under section 110, but does not include...( c ) a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such assisted person to the creditor...[there are (A)-(E) exceptions].
    2. "Assisted person" is defined by New Law §101(3) as:
       • "any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $150,000".
    • So if your client has more than 50% business debts, and less than 50% consumer debts, then you are not a "debt relief agency" vis a vis that client. Or if your client has less than $150,000 of nonexempt property, you are not a "debt relief agency"

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30. What additional duties and liabilities will be imposed on debtor consumer bankruptcy attorneys as a result of being "debt relief agencies, per New Law 11 USC §526, 527 and 528?
    1. There are a bunch of new duties and liabilities, including:
       1. Per 526(a)(4) a debt relief agency may not advise an assisted person or prospective assisted person to incur more debt in contemplating filing a bankruptcy, AND may not incur debt to pay YOU the attorney for services performed as part of preparing for or representing a debtor in bankruptcy.
       2. Per 528(a)(4), your advertising much conspicuously disclose "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy code" or a substantially similar statement.
       3. Per 528(b) If you advertise to the general public (e.g. phone book, internet website) your ad must include a description of bankruptcy assistance regarding a Chapter 13 plan, and must make clear that you are advertising bankruptcy, not just credit counseling.
       4. Debt relief agencies shall not fail to perform any service that the debt relief agency informed an assisted person it would provide, make any false statement or misrepresentation.
       5. Waivers of rights provided by 526, 527 and 528 are not enforceable, per 526(b).
       6. Any contract that does not comply with 526, 527 and 528 is VOID per 526( c )
       7. If you flunk these sections, you can be liable to pay the client actual damages, and reasonable attorneys fees and costs, if the person's bankruptcy case was dismissed or converted because of the debt relief agencies's intentional or negligent failure to file any required document including the documents specified in 11 USC §521.m, per 526( c )(2).
       8. And you can be enjoined, per 526(a)(3).
       9. 11 USC §527(a)(1) specifies that a debt relief agency shall give the assisted person the written notice required by 11 USC §342(b)(1). The written notice required by Section 342(b)(1) must state:
          1. "Before commencement of a case under this title by an individual whose debts are primarily consumer debts, the clerk shall give to such individual written notice containing" a brief description of all chapters, types of services available from creditor counseling agencies, and statements that a person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury in connection with a case under this title shall be subject to fine, imprisonment or both, and that all information supplied by a debtor is subject to examination by the attorney general.
       1. Language just quoted says "clerk", referring to the Clerk of Court. Why does the debtor's attorney have to give this written notice to the debtor if it says the clerk is supposed to do it?
          1. Obviously, before the case is filed the Clerk of court does not know your client exists. Further, in New Law 11 USC §527(a)(1), it says the "debt relief agency" which is the debtor attorney, has to give the client the 342(b) notice.
       10. In addition to giving the client the written notice required by Section 342(b)(1), a debt relief agency must give the client a clear and conspicuous written notice, within 3 business days after the first date on which a debt relief agency first offers to provide ANY bankruptcy assistance services to an assisted person, that bankruptcy petition data must be truthful, that all assets and liabilities must be accurately disclosed, that disposable income is required to be accurately disclosed, and that all this information may be audited during the bankruptcy case. [11 USC §527(a)(2)(A), (B) and ( C )].
       11. In addition, the debt relief agency must provide the client a written statement containing the language specified in 527(b), which has to be captioned: "IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER" and which has to verbatim state the rest of the information stated in 527(b). This must be given to the assisted person at the same time as the Section 342(b)(1) Notice.
    2. Can a creditor attorney fall within the classification of a "debt relief agency" and therefore have to comply with the new law "debt relief agency" provisions , 11 USC §526, 527 and 528?
       1. The definition of "debt relief agency" exempts a creditor from being considered to be a "debt relief agency", but does NOT exempt creditor's lawyers from being considered to be a "debt relief agency". Recently a MediCal staff attorney recommended to a consumer that the consumer file bankruptcy to deal with a multi-hundred thousand dollar MediCal debt. That MediCal attorney was being paid by his employer for giving that advice, he was giving it to a consumer, so if the non-exempt property of the consumer was under $150,000, that could be found to put that creditor's attorney within the definition of being a "debt relief agency", with all duties that come with that. Also, non bankruptcy attorneys who suggest that their individual client file bankruptcy as a litigation technique can be within the definition of "debt relief agency".

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31. What is the "MEANS TESTING" imposed by the New Law?
    1. "Means testing" is a mechanism in the New Law whose purpose is to try to force a lot more consumer debtors to file Chapter 13, instead of being able to be in Chapter 7, and to force a lot of those Chapter 13s to be 5 year plans, instead of the present 3 year plans, by creating a presumption that the debtor is abusing bankruptcy, and additionally increases exposure of consumer debtor attorneys.

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(Section 3 of 10)
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