Lawyers Not 'Debt Relief Agencies' Under New Bankruptcy Law

A Georgia bankruptcy judge, on his own motion, has ruled that restrictions on the activities of "debt relief agencies" under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 do not apply to licensed attorneys.

"It would be a breathtakingly expansive interpretation of federal law to usurp state regulation of the practice of law via the ambiguous provisions of this act," said Chief Judge Lamar W. Davis of the U.S. Bankruptcy Court for the Southern District of Georgia.

The BAPCPA took effect last month, with most of the public attention focused on whether victims of Hurricanes Katrina and Rita would be able to avoid the law's more stringent requirements for debtors. Under the law, more consumers will have to repay at least some of their debts instead of starting over with a clean slate. The law also imposes new bankruptcy hurdles, including a requirement that filers get credit counseling.

Whether lawyers are debt-relief agencies has been a matter of controversy in the legal community because the statute's language is vague enough to include them.

The BAPCPA defines a debt-relief agency as "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 the act, debt-relief agencies are subject to civil and criminal penalties for failure to make what amount to mandatory truth-in-advertising disclosures to people contemplating bankruptcy.

The act likewise prohibits debt-relief agencies from giving certain kinds of advice, like counseling debtors to incur more debt or even to pay an attorney.

"I believe that if Congress meant to ensnare attorneys in the thicket of [new restrictions], it would have used the term 'attorney' and not 'debt relief agency,'" Judge Davis said.

The new mandates have been derided as "slipshod," "absurd," and perhaps unconstitutional, but legal scholars generally say lawyers should adjust their bankruptcy practices to comply, Judge Davis noted.

Regardless, the judge said attorneys appearing in his court need not comply "so long as their activities fall within the scope of the practice of law and do not constitute a separate commercial enterprise."

Judge Davis said Congress intended only to restrict businesses "in shadowy gray areas" not already governed by official standards of conduct. Among these would be non-lawyer, Internet-based companies that offer bankruptcy forms, instructions and petition-preparation services, he said.

"It is well-known that non-lawyers often attempt to provide 'legal representation,' often to poorer, less educated and more vulnerable citizens," the judge added.

He concluded by reminding attorneys that "the tradition of professional conduct remains of paramount concern to this court."