The Perilous Road to Successful Debtor
Representation

By Alan J. Belsky 

Belsky, Weinberg & Horowitz, LLC
220 North Liberty Street
Baltimore, Maryland 21201
(410) 234-0100

ajbelsky@bwhlaw.com
www.legalteam.net

       The consumer bankruptcy practice has always been a minefield for the unwary attorney. The nature of the work itself and the clients whose predicaments are at issue give rise to potential difficulties with the attorney-client relationship and with the need to balance the rights of the client against the requirements of the law.

       The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has added significant additional responsibilities and restrictions to the litany of responsibilities already required of debtors' counsel. The Maryland Rules of Professional Conduct (MRPC) control most issues related to an attorney's professional conduct. This outline summarizes some of the more prevalent ethical issues arising in the context of consumer debtor bankruptcy representation and summarizes some of the pertinent statutory and case law on a variety of issues.

       I.Prevalent Consumer Bankruptcy Practice Issues Since BAPCPA:

       Are Bankruptcy Attorneys “Debt Relief Agents” Under BAPCPA? The majority of jurisdictions have answered this question in the affirmative. Section 101(12A) defines “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.” Section 101(41) defines “person” to include an individual, partnership and corporation. . . .” Based on the foregoing, a majority of courts have concluded that attorneys and law firms are “debt relief agents” and “debt relief agencies” under the BAPCPA. In re Gutierrez , 356 B.R. 496 (Bankr. N.D. Cal. 2006); Zelotes v. Martini , 352 B.R. 17 (D. Conn. 2006); Olsen v. Gonzales , 350 B.R. 906 (D. Or. 2006); Hersh v. United States , 347 B.R. 19 (W.D. Tex. 2006); In re Mendoza , 347 B.R. 34 (W.D. Tex. 2006). But see, e.g., In re Sorrell , ___ B.R. ___, 2007 WL 211276 (Bankr. S.D. Ohio 2007); In re Reyes , ___ B.R. ___ , 2007 WL 136934 (Bankr. S.D. Fla. 2007); In re Attorneys at Law and Debt Relief Agencies , 332 B.R. 66 (Bankr. S.D. Ga. 2005).

       Do the Debt Relief Agency Provisions of BAPCPA Conflict with the Rules of Professional Conduct? Section 526(d)(1) provides that “[n]o provision of [§§ 526, 527 or 528] shall-annul, alter, affect or exempt any person subject to such sections from complying with any law of any State except to the extent that such law is inconsistent with those sections, and then only to the extent of the inconsistency.” Maryland Rule 16-812 (Preamble) and MRPC 1.3 (Diligence, Comment 1) and 3.1 (Meritorious Claims and Contentions) require zealous representation of clients. Courts are now struggling with the balance between the absolute duty to zealously represent a client and the prohibitions of certain communications by attorney to client under BAPCPA. See, e.g., In re Sorrell , ___ B.R. ___ 2007 WL 211276 (Bankr. S.D. Ohio 2007); In re Reyes , ___ B.R. ___, 2007 WL 136934 (Bankr, S.D. Fla. 2007); In re Attorneys at Law and Debt Relief Agencies , 332 B.R. 66 (Bankr. S.D. Ga. 2005) (Sections 526, 527 and 528 infringe upon a state's traditional role of regulating attorney); Olsen v. Gonzales , 350 B.R. 906 (D. Or. 2006) (similar). Preemption issues will undoubtedly be raised in future cases.

       Advising Your Client to Incur New or Additional Debt on the Eve of Bankruptcy. Section 526(a)(4) of BAPCPA specifically prohibits an attorney from advising a client to incur debt prior to a bankruptcy filing and imposes sanctions of disgorgement of fees, payment of reasonable attorney fees incurred by others, and subjects the attorney to potential actions by state attorneys general and United States Trustees to enjoin such conduct. Several courts have concluded that the restriction on such advice violates the First Amendment rights of the client and/or the attorney. Milavetz, Gallop & Milavetz P.A. v. United States , 355 B.R. 758 (D. Minn. 2006); see also Olsen v. Gonzales , 350 B.R. 906 (D. Or. 2006) (§ 526(a)(4)'s restriction on legal advice to a client related to incurring debt prepetition is unconsitutional and prevents lawyers from offering clients “their best advice.”); accord Hersh v. United States , 347 B.R. 19 (N.D. Tex. 2006) (§ 526(a)(4) violates the First Amendment). Other courts have refused to reach the issue on procedural grounds. Geisenberger v. Gonzales , 346 B.R. 678 (E.D. Pa. 2006) (attorney has no standing to assert client's First Amendment rights); In re McCartney , 336 B.R. 588 (Bankr. M.D. Ga. 2006) (no actual case or controversy). Advising a client to incur credit card debt for purposes of paying for bankruptcy representation is clearly fraudulent. Attorney Grievance Comm'n v. Culver , 381 Md. 241, 849 A.2d 423 (2002). Other courts, however, suggest that such advice is appropriate under BAPCPA. See, e.g., Zelotes v. Adams , 352 B.R. 17 (D. Conn. 2007) (“taking on more debt in contemplation of filing for bankruptcy does not necessarily constitute abuse. The statute prohibits all advice regarding debt incurred in contemplation of bankruptcy rather than restricting its reach to false or fraudulent advice or advice given to assist the debtor in “gaming” or “abusing” the system. As such, § 526(a)(4) prohibits attorneys, in certain instances, from giving the best and most complete advice to their clients. . . . By prohibiting lawyers from advising clients to take lawful, prudent actions as well as abusive ones, 526(a)(4) is overbroad and restricts attorney speech beyond what is ‘narrow and necessary' to further the governmental interest.”).

       Pro Bono Representation. Since BAPCPA, the number of attorneys taking pro bono bankruptcies has dropped precipitously. Ethical issues are raised by the current arrangement with pro bono service organizations who assume responsibility for the initial intake of clients and assist them in obtaining credit counseling before the referral is made. An attorney is well advised to review carefully the intake done by the referring institution. This therefore raises the question of whether due diligence under BAPCPA requires the time and expense required of debt relief agents to investigate and confirm the information supplied by the client. Courts are now recognizing that the liability of a debt relief agent should not extend to attorneys providing pro bono representation. At least one bankruptcy court has held that providing pro bono representation does not give rise to an exchange of services for “valuable consideration” so that an attorney providing pro bono representation is not a debt relief agency. In re Reyes , ___ B.R. ___ , 2007 WL 136934 (Bankr, S.D. Fla. 2007). The court concluded that any consideration or “credit” from the state for pro bono services is not the receipt of consideration from the client or an “assisted person.” In Maryland, the argument is even stronger since there is no requirement that an attorney perform pro bono services. MRPC 6.1 (pro bono work is “aspirational, not mandatory”). The Executive Office of the United States Trustee has formally taken the position that pro bono attorneys are not debt relief agents. www.usdoj.gov/ust/eo/bapcpa/trustees_faqs.htm#dra_issue6 .

       Reaffirmation Agreements and Potential Attorney Liability Under BAPCPA. Attorneys are faced with the dilemma of assisting bankruptcy clients by preventing the loss of property while at the same time ensuring that they do not worsen their financial situation by reaffirming debts. Form B240, adopted by the Advisory Committee on Bankruptcy Rules of the Judicial Conference of the United States, is now approved as the official form for reaffirming debts. The form is causing significant concern for attorneys who are uncertain as to whether they should certify their clients' ability to afford to pay a reaffirmed debt. Sometimes the form is mistakenly filled out incorrectly, while at other times the attorney intentionally refuses to unequivocally certify that the reaffirmation will not create undue hardship for the client out of fear that he or she will be held responsible for a decision that is later deemed ill-advised. An attorney who provides false or misleading information in a reaffirmation agreement is subject to the enforcement mechanisms set out in 11 U.S.C. § 526(c). When ambiguity in a submitted Form B240 exists, a hearing must be held or the clerk must decipher the intent of the debtor to determine whether a hearing is necessary. Court clerks should not be left to exercise discretion in any case. Judge Leif M. Clark in In re Mendoza , 347 B.R. 34 (Bankr. W.D. Tex. 2006) sets forth the numerous different ways attorneys and/or a pro se clients may incorrectly fill out the form and provides a suggested approach for attorneys to follow in filling out the Form B240 when it is unclear whether the reaffirmation will create undue hardship upon the client. Id . at 39.

       Determining Appropriate Out-of-State Exemptions. Attorneys are in a tug-of- war between the ethical duties of competency and the reality that out-of-state exemption laws are frequently complicated and not well defined by statutory and case law. An attorney practicing consumer bankruptcy must now have available vast research resources to determine which exemption statutes to use for clients whose residency preceding the bankruptcy filing requires use of out-of-state exemption statutes. The attorney's duty of competency under the MRPC requires access to all laws necessary to handle the client's case properly, and consultation with legal counsel if the matter remains unclear. MRPC 1.1, 1.3.

       Advertising. BAPCPA requires that attorneys representing debtors in bankruptcy conspicuously state in their advertising that “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.” Substantially similar language is permitted. At least one court has held that the advertising restrictions in Section 528(a)(4), (b)(2) are not sufficiently narrow to prevent only misleading advertising and are thus unconstitutional. Milavetz, Gallop & Milavetz P.A. v. United States , 355 B.R. 758, 767 (D. Minn. 2006). See also MRPC 7.2.

       Beware of Last Minute Prospective Bankruptcy Clients Who Have Not Obtained Credit Counseling. An attorney should consider carefully whether to take on representation of a client who must file a bankruptcy immediately but who has not obtained credit counseling. Although one Maryland decision holds that same-day credit counseling is acceptable, In re Hudson , 352 B.R. 391 (Bankr. D. Md. 2006), the majority of jurisdictions apply the “exigent circumstances” provision in Section 109(h)(3)(A) very narrowly and are divided on the issue of what constitutes circumstances that justify a bankruptcy filing when credit counseling has not been obtained at all before the filing. See, e.g., In re Childs , 335 B.R. 623 (Bankr. D. Md. 2005) (certification of exigent circumstances need not be under oath and need only describe the debtor's circumstances, and state that counseling was requested but not available). But see In re Hubbard , 333 B.R. 377 (Bankr. S.D. Tex. 2005) (certification must be under penalty of perjury or is considered insufficient).

II.Practices and Procedures that Reduce the Risk of Ethical and Legal Trouble:

Pre-engagement Issues:

       Client Interview. Most individuals have no experience with the bankruptcy process and require a significant amount of education on a variety of topics. The level of client sophistication or lack thereof drives the extent to which they must be informed about bankruptcy and non-bankruptcy options. The attorney serves as the lead educator and advisor and should have confidence that the client understands the bankruptcy process, will respect the bankruptcy system and their responsibilities as a debtor, and will disclose accurate and complete information.

       Understand the Credit Counseling and Education Process. Every bankruptcy attorney should participate at least once in an actual credit counseling session. The average session lasts at least an hour and is more extensive than one would expect. Some questions are complex and are required by the United States Trustee's Office. In addition to obtaining the raw data from the client to assess their assets and liabilities, the counseling is designed to educate the client about their finances, and to identify the circumstances which have caused them financial hardship. A client should be well prepared in advance of the counseling session for an extensive interview and should be armed with the information requested by the counselor.

       Direct Solicitation of Potential Bankruptcy Clients. Many firms use lists generated from the dockets of the district and circuit courts and mail solicitation letters to the defendants in collection and foreclosure actions. In addition to the BAPCPA requirement that debtors' counsel conspicuously state that he or she is a debt relief agency, state ethics laws require that the solicitations can be made only in writing and that the correspondence clearly state that it is a solicitation. MRPC 7.3: “Every written, recorded, or electronic communication from a lawyer soliciting professional employment from a prospective client known to be in need of legal services in a particular matter shall include the words "Advertising Material" on the outside envelope, if any, and at the beginning and ending of any recorded or electronic communication. . . .”

       “ Last Minute” Representation of Client with Imminent Foreclosure. Clients are not always certain (or accurate) in their rendition over the telephone as to exactly when their foreclosure sale is set to occur. An attorney who invites a client to the firm on the eve of a foreclosure sale is faced with the very real risk that they will have hours if not minutes to get a bankruptcy case filed. It is highly questionable under such circumstances whether a lawyer can comply with his or her duties under the Code and MRPC in gathering the necessary facts to initiate a bankruptcy in time to stop the foreclosure. A last minute filing may turn into a late filing that fails to stave off the foreclosure or other actions against the client's assets. If a client comes to your office very late in the game be sure to document the time of arrival and have the client acknowledge in writing when they arrived, that your best efforts have been undertaken, but that no guarantees can be made as to the success of a last minute filing.

       Assess Your Competence to Handle Particular Legal Matters and Refuse the Representation When Appropriate. Whether a client is entitled to “informed consent” as to an attorney's lack of skill or experience is an open question. The Court of Appeals recently held that a physician must disclose his lack of experience and the likelihood that another physician with more experience may achieve a better surgical outcome. Goldberg v. Boone , 396 Md. 945, 912 A.2d 698 (2006). MRPC 1.4 requires that a lawyer “promptly inform the client of any decision or circumstance with respect to which the client's informed consent is required by these Rules.” There are very few cases on the larger issue of whether an attorney owes a duty of informed consent to his client in both the representation and resolution phases of a case. Acknowledgment of the risks of a legal strategy is appropriate if not required, but a waiver of an attorney's liability agreement between counsel and client is not permitted by the MRPC 1.8(h)(1).

       If You Know the Case is Going to Fail or the Likelihood of Success is Limited by the Facts or the Law, Tell Your Client and Refuse the Representation When Appropriate. Some potential clients simply don't have a chance to prevail on legal arguments and issues presented by their bankruptcy filing even with the best representation possible. In those instances, a lawyer may violate Rules 1.1, 1.3, 3.1 and 8.4 by taking on a loser, filing frivolous proceedings, and charging a client for same. Attorney Grievance Comm'n v. Sutton , 394 Md. 311, 323-24, 906 A.2d 335, 342 (2006); Attorney Grievance Comm'n v. Steinberg , 395 Md. 337, 369, 910 A.2d 429, 448 (2006).

       Power of Attorney for Allegedly Infirm or Incapacitated Debtor. On occasion, family members or friends seek to file a bankruptcy for the relative or friend using a power of attorney. This is permitted under certain circumstances. It is, however, ill advised to take a power of attorney and the attorney designee at their word on the validity of the POA or the extent of the grantor's incapacity. Ask many questions as to how and why the POA was created, confirm that it meets the requirements of the law, and determine whether the POA grants the attorney-in-fact all powers necessary to comply with the requirements of bankruptcy. It is not inappropriate to ask for the production of medical records, physician notes or other documentary proof that establishes the basis for the grantor's disability or intention. It is also important to inquire as to the anticipated future duration of the debtor's disability to determine whether the attorney-in-fact will continue in that capacity or whether the grantor may at some point in the future nullify the POA and assume direct responsibility for his or her case. See MRPC 1.14.

       Power of Attorneys for the Potentially Missing or Unavailable Client. Some attorneys seek blanket authorizations from clients to take whatever legal action is necessary to preserve and protect their interests. This is done as a safeguard against the possibility that a client's consent cannot be obtained after good faith efforts have been undertaken to obtain their direct consent. An attorney must juggle the best interests of the client against the possibility that he or she is acting without the client's authority. This dilemma arises frequently in the context of settling motions for relief from stay and entering into consent agreements. Whether such an agreement is legally and ethically permissible is unclear. MRPC 1.2(a) provides that “[a] lawyer may take such action on behalf of the client as is impliedly authorized to carry out the representation. A lawyer shall abide by a client's decision whether to settle a matter.”

       Take on Only as Much Work as Your Office Can Handle. Consumer bankruptcy practice is traditionally a volume practice. Large fees are rarely earned on consumer cases. Taking on too much work is “poor judgment.” “Workaholism” is not an acceptable excuse or defense to a claim for violation of the Rules of Professional Conduct. Attorney Grievance Comm'n v. Howard , 282 Md. 515, 385 A.2d 1191 (1978); Attorney Grievance Comm'n v. Drew , 341 Md. 139, 669 A.2d 1344 (1996).

       Keep Abreast of Developments in the Law. BAPCPA has generated many questions which are just now being addressed by the courts. Because of the drastic changes brought about by BAPCPA, attorneys have a greater duty to keep informed of all decisions which affect the impact and application of the law to their clients. Maintain up-to-date subscriptions for the Bankruptcy Code, Bankruptcy Rules, Federal Rules and Local Rules; select at least one newsletter you find worthy that provides updates on your particular area of practice, e.g., Consumer Bankruptcy News (LRP Publications); consider an online subscription service for federal case law at least within the 4th Circuit, e.g., Westlaw, LEXIS, etc.; and attend at least two CLE seminars annually that will improve your knowledge of the law in your primary practice areas. MRPC 1.1, 1.3.

       Keep Up With Technology or Else. Those involved in bankruptcy litigation can no longer claim technological ineptitude when it comes to electronic data discovery (EDD) and electronically stored information (ESI). Amended Federal Rules of Civil Procedure 26(b), 34(b) and 37, effective December 1, 2006, mandate the exchange of ESI during discovery and require good faith efforts to prevent the loss of such data. These rules should be read carefully to determine what must be produced and the sanction for lost or destroyed data. Attorneys must also be aware of all “metadata” contained within electronic data they produce and understand their duty to cleanse metadata before the data is produced. Electronic data production is a “hot topic” and is the subject of a growing body of court opinions. See, e.g., Thompson v. U.S. Dep't of Hous. & Urban Dev. , 219 F.R.D. 93, 98 (D. Md. 2003) (Grimm, M. J.); see also Zubulake v. UBS Warburg L.L.C. ( Zubulake I ), 217 F.R.D. 309 (S.D.N.Y.2003); Zubulake v. UBS Warburg L.L.C. ( Zubulake II ), 230 F.R.D. 290 (S.D.N.Y.2003); Zubulake v. UBS Warburg L.L.C. ( Zubulake III ), 216 F.R.D. 280 (S.D.N.Y.2003); Zubulake v. UBS Warburg L.L.C. ( Zubulake IV ), 220 F.R.D. 212 (S.D.N.Y.2003); Zubulake v. UBS Warburg L.L.C. ( Zubulake V ), 229 F.R.D. 422 (S.D.N.Y.2004).

Post-Engagement Issues:

       Use an Intake Form and Written Retainers. An intake form is a critical document in the process of legal representation. Failure to use an intake form will surely result in inaccurate bankruptcy schedules and will raise the likelihood that the attorney will be held ultimately accountable for those inaccuracies. Clients should complete the intake form to the best of their ability and should sign the form to acknowledge the information contained therein is accurate. This provides a certain level of protection for the attorney if called upon to explain how errors and omissions in the filing process occurred. Use a specially crafted retainer agreement to disclose the rights and responsibilities of the attorney and the client, and to disclose the fees for various services that may be required and events that may occur. Use separate retainer agreements for Chapter 13 and Chapter 7. Use separate retainer agreements for certain matters that are properly excluded from your core representation.

       Educate Your Clients. Always presume that clients know nothing about bankruptcy even if their questions and stated understanding reflect otherwise. The adage “a little bit of knowledge is a dangerous thing” is most fitting for those clients who come to your office professing to understand issues of dischargeability and the like. Most clients are misinformed about bankruptcy issues and have learned the information from the media or from friends or relatives who have filed bankruptcy before. Spend an appropriate amount of time explaining every aspect of the case, including the importance of honesty and full disclosure of assets and liability, the importance of attending all meetings and arriving on time, the necessity that they read carefully all mail received from your office, the court or the trustee, the need to remain current on secured loans when collateral is retained, and the need to ask questions when they do not understand a communication or their responsibilities. MRPC 1.2 requires that you educate your client and confirm that they understand and wish to proceed with a bankruptcy filing. Attorney Grievance Comm'n v. Steinberg , 395 Md. 337, 368, 910 A.2d 429, 447 (2006).

       Verify the Accuracy of the Information Supplied by the Client. In the real world, not all information supplied by a client can be verified. Particular areas that should be reviewed and verified by the attorney include: (1) record ownership of real estate; (2) lawsuits and judgment liens; (3) tax liability; (4) arrearage on secured loans; (5) potential inheritance; (6) claims and lawsuits where recovery is anticipated; (7) transfers of property; (8) credit activity prior to the filing date; (9) prior bankruptcy filings; (10) divorce, child support and restitution responsibilities; (11) codebtors; (12) pensions and retirement accounts; and (13) residency preceding bankruptcy.

       Make Your Clients Read the Papers You Have Prepared on Their Behalf. If it appears that a client is unwilling or unable to read and understand the papers you have prepared for them, the attorney has a duty to take appropriate action to facilitate the necessary communication and understanding by the client. Clients when called upon by a trustee or the court to explain inaccuracies on their bankruptcy papers will frequently complain that they did not review their papers before signing, or more significantly, that their lawyer did not go over the papers with them and simply turned to the last page and told them to sign. MRPC 1.2 requires that an attorney consult with the client as to the means by which the objectives of representation are to be pursued. Best practice is to have the client sign a separate document in addition to the schedules that acknowledges that the lawyer reviewed with the client page-by-page every document related to the bankruptcy filing.

       Preserve Certain Advice and Communications in Writing. Not every communication between attorney and client need be reduced to writing. Important developments and legal opinions, however, should be communicated in writing. This serves the dual benefit of confirming the event or advice, and may operate to defeat a claim by the client that they were not kept informed and did not consent to the action taken.

       Preserve and Protect Client Confidentiality. Clients are not always truthful or responsible in heeding advice and instructions. Although this raises the frustration level of counsel who winds up in the middle of the problem and who is tasked with coming up with solutions, counsel must not disclose to creditors, counsel, the trustee or the court information that is protected by the attorney-client privilege. Candor to the parties and the tribunals does not provide the attorney with carte blanche rights to disclose what the attorney told the client to do or not do, and what the client said he or she did or did not do. Casual remarks at 341 Meetings and Confirmation Hearings are in some cases violative of the Rules of Professional Conduct and should be avoided. If questions must be answered, invite a 2004 examination where your client can disclose what he or she must, and where you can assert and preserve objections as necessary to protect your client's rights. MRPC 1.6.

       Appear at All Proceedings Against Your Client Whether or Not You've Been Paid. Attorneys are always conflicted when they receive motions after the core of their work is done and when they have not been paid or contacted by the client for months if not years. Until and unless the attorney's appearance is withdrawn, the attorney has a duty to appear at all proceedings. Despite the absence of a colorable defense, the attorney should appear. Failure to appear at a single court proceeding represents neglect of legal matters entrusted to the lawyer by his or her client and is prejudicial to the administration of justice. Attorney Grievance Comm'n v. Fick , 319 Md. 305, 572 A.2d 501 (1990).

       Lawyer as Witness in Client's Case. There are occasions when a judge may call upon debtor's counsel to take the witness stand to answer certain questions. “Combining the roles of advocate and witness can prejudice the tribunal and the opposing party and can also involve a conflict of interest between the lawyer and client.” MRPC 3.7, Comment 1. An attorney is justified in refusing to answer questions that may disclose a confidential communication or which may be adverse to the client's cause. At minimum, an attorney is well advised in all instances to preserve an objection to being called as a witness by placing on the record the basis for the objection.

       Guide and Advise Your Client Through the Post-Filing Phase. In the days before BAPCPA, a report of “no assets” by the chapter 7 represented the unofficial end of the case except in the rare instance when an adversary proceeding was filed. The days of de facto conclusion of a chapter 7 upon the conclusion of the 341 meeting are over. Now, the client has the additional responsibility of pre-discharge credit education, and the attorney must encourage the client to comply with all post-bankruptcy requirements. Obviously, the identification of assets by the trustee and adversary proceedings instituted after the 341 meeting require attorney action to advise and consult with the client, the trustee, the adversary party and the court. It is no longer acceptable to refuse client representation in most post-filing matters simply because the client has not paid for the anticipated services. A retainer agreement that limits representation to the “ordinary” non-contested and non-adversarial aspects of a Chapter 7 must be drafted properly and the limitation clearly disclosed to the Court.

       Chapter 13 representation is a completely different story. No more are the days of an attorney disengaging after confirmation. The Court is in the final stages of formulating by local rule amendment the rights and responsibilities of attorneys representing Chapter 13 debtors. The goal is to encourage if not require the attorney's continued representation for the duration of the case, save for extraordinary circumstances. At this point, an attorney's duty includes monitoring claims, reviewing semi-annual trustee reports, responding to lift stay motions and trustee requests and actions, and, most importantly, maintaining communication with the client on a regular basis to ensure they remain on “track.” This allows the attorney to plan ahead if it appears the client is faltering, and avoids unreasonable conclusions by the client as to their responsibilities that may be incorrect and potentially catastrophic to their case.

       Conflicts of Interest Arising in the Course of Representation. One must remain cognizant of actual or potential conflicts of interest in any case. Not infrequently, marital separation is a cause of financial hardship necessitating bankruptcy. Be sure to inquire with the client as to the status of co-debtor spouses and creditors, and determine whether dual representation of both husband and wife, or debtor and “interested party” violates or potentially gives rise to a conflict of interest. Parties may waive certain conflicts. Whether the attorney representing a party may seek a waiver remains an open question under the rules. Conflicts may also arise when the person paying for the legal services is also a creditor of the estate or believes they have rights to control the attorney's representation or the course of the case. “A lawyer shall not permit a person who recommends, employs, or pays the lawyer to render legal services for another to direct or regulate the lawyer's professional judgment in rendering such legal services.” MRPC 5.4(c). Prior representation of a creditor may conflict an attorney out of representing a debtor who is indebted to that creditor. Maintain a system that allows expeditious conflict checks that can be run before legal advice is rendered. MRPC 1.7.

       Handling Client Funds in Escrow Held to Pay Trustee or Creditor. An attorney who takes money from a client in an effort to assist in paying the trustee or a creditor does so at his or her own peril. An attorney must disburse promptly and accurately client funds. Failure to do so constitutes a violation of the Rules of Professional Conduct and may give rise to a malpractice claim if the case is dismissed or otherwise prejudiced. Attorney Grievance Comm'n v. Drew , 341 Md. 139, 669 A.2d 1344 (1996).

       Escrow Account and Fee Management. There remains uncertainty under state and federal law as to whether an attorney is required to deposit into escrow fees paid for bankruptcy representation. Money retained by an attorney in escrow is property of the bankruptcy estate. Moreover, an attorney is prohibited by the Code from taking fees from clients after the petition is filed. The Attorney Grievance Commission has opined informally that consumer bankruptcy attorneys must deposit all bankruptcy fees into escrow and draw upon the fees as earned.

       An attorney is required to keep his or her escrow account in balance and to reconcile the account every month. Some suggestions for escrow management include: (1) using a computerized accounting program, e.g., QuickBooks, to manage all escrow accounts. AGC v. Zuckerman , 386 Md. 341, 872 A.2d 693 (2005); (2) reconciling escrow accounts on a monthly basis every month. AGC v. Zuckerman, supra ; (3) prohibiting nonlawyers or associates from making escrow deposits or signing escrow checks. Id. ; (4) refunding promptly client funds when required or when funds are received from a third-party pursuant to a preference or other recovery action; and (5) using carbon copy receipts for acceptance of cash payments and provide clients with balance due information each time they pay.

       Never Share Fees or Accept Fees from Lenders and Businesses for Client Referrals. State and federal law clearly prohibits the sharing of fees collected for bankruptcy representation. 11 U.S.C. § 504 (prohibits fee sharing between attorneys in different firms and with non-attorneys); MRPC 1.5 (sharing of fees between attorneys and non-attorneys is prohibited); Maryland State Bar Ass'n, Op. 96-17 (1995) (a lawyer may not ethically participate in a proposed business arrangement with a financial planning organization pursuant to which the lawyer, following settlement, having previously entered into the relationship with the organization, refers a client for financial planning services and receives a commission if the client purchases any financial service.).

Who is Ultimately Responsible for the Client?

       Do Not Delegate Attorney Responsibilities to Non-Attorney Staff. An attorney is accountable for the information disseminated and actions and inactions of all staff members. An attorney may violate his or her ethical and legal obligations by delegating responsibility to non-attorney staff for such things as (1) explaining the process of bankruptcy to an existing or potential client; (2) reviewing completed schedules with a client; (3) obtaining sign-off on documents from a client; (4) discussing the implications of lift stay motions, adversary proceedings and refinancing implications; (5) negotiating settlements on motions and adversary matters; and (6) advising a client's responsibilities to the court, the trustee and creditors. MRPC 5.3; Attorney Grievance Comm'n v. Drew , 341 Md. 139, 669 A.2d 1344 (1996).

       Responsibilities of Partners, Managers, and Supervisory Lawyers. MRPC 5.1: “(a) A partner in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority in a law firm, shall make reasonable efforts to ensure that the firm has in effect measures giving reasonable assurance that all lawyers in the firm conform to the Maryland Lawyers' Rules of Professional Conduct. (b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Maryland Lawyers' Rules of Professional Conduct. (c) A lawyer shall be responsible for another lawyer's violation of the Maryland Lawyers' Rules of Professional Conduct if: (1) the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or (2) the lawyer is a partner or has comparable managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action.”

       Responsibilities of a Subordinate Lawyer. MRPC 5.2: “(a) A lawyer is bound by the Maryland Lawyers' Rules of Professional Conduct notwithstanding that the lawyer acted at the direction of another person. (b) A subordinate lawyer does not violate the Maryland Lawyers' Rules of Professional Conduct if that lawyer acts in accordance with a supervisory lawyer's reasonable resolution of an arguable question of professional duty.”

       General Rules and Standards for Determining Legal and Ethical Duties:

       The Legal Standard for Applying the Appropriate Sanction for Ethical Violations. “The purpose of disciplinary proceedings is to protect the public rather than to punish the erring attorney. Sanctions are imposed to protect the public from harm, to uphold the integrity of the Maryland legal profession, and to deter other members of the profession from acting in a similar manner.” Attorney Grievance Comm'n v. Goldsborough , 330 Md. 342, 624 A.2d 503 (1993); Attorney Grievance Comm'n v. Webster , 348 Md. 662, 705 A.2d 1135 (1998). The extent of the discipline to be applied should be proportionate to the severity of the conduct and the facts surrounding it. Attorney Grievance Comm'n v. Jaseb , 364 Md. 464, 773 A.2d 516 (2000).

       Determining the Standards of Care. Standards of care are dictated first by the Code and Rules, then by the Courts, and then by the practice. The code is the code and the rules are the rules and the fact that you practice a certain way and were able to do certain things because nobody objected doesn't change what the code and the rules require. Simply because everyone does it a certain way doesn't make it the right way. In negligence claims, the standard of care for a bankruptcy practitioner is what a reasonably prudent bankruptcy attorney would do or should have done in the situation presented. Franch v. Ankney , 341 Md. 350, 361, 670 A.2d 951 (1996). Bankruptcy attorneys are at greater risk for legal malpractice claims since the enactment of BAPCPA. Most malpractice insurers now recognize this increased risk and have raised premiums to offset the potential risk of future claims.

       Read the Maryland Rules of Professional Conducts in their Entirety. Over the past several years, many new and amended rules have been enacted which change fundamentally the ethical rules and procedures for attorneys to follow. Every attorney should read the MRPC and the accompanying comments. The reading is not voluminous and is frequently enlightening and sometimes frightening. Maryland Rules Vol. 2; Maryland Rule 16-812 (2007).

Selected Bibliography

Maryland Opinions Involving Professional Misconduct of Bankruptcy Practitioners

Attorney Grievance Comm'n v. Cohen , 361 Md. 161, 760 A.2d 706 (2000) (Bankruptcy judge reported attorney for two cases in which attorney had appeared. In one, attorney failed to ensure that pre-confirmation payments were made by the client and that all tax returns were filed. Debtors' preconfirmation certificate filled out by attorney reflected that all prepetition requirements were met when they were not. In the second case, the attorney failed to take appropriate exemptions and his advice that debtor convert from chapter 13 to 7 was erroneous and resulted in the loss of considerable assets. Finding violations of MRPC 1.1, 1.3, 1.4 and 8.4, attorney was indefinitely suspended.);

Attorney Grievance Comm'n v. Culver , 381 Md. 241, 849 A.2d 423 (2002) (Attorney had multiple disciplinary claims against him including one where he filed a Chapter 13 bankruptcy to discharge the action of his former client for attorney's alleged sexual misconduct which was dismissed by the bankruptcy court as a deceptive, frivolous, and fraudulent use of the bankruptcy process. Attorney inter alia counseled client to obtain cash advances to pay his fee and charged client for initial consultation which he advertised as free. Finding violations of MRPC 1.2, 1.3, 1.5, 1.7, 1.15, 3.1, 3.2, 3.4, 8.4., attorney was disbarred.);

Attorney Grievance Comm'n v. Drew , 341 Md. 139, 669 A.2d 1344 (1996) (Attorney failed to act with requisite competence and diligence, failed to communicate with client, failed to properly supervise nonlawyer assistants, and failed to properly safeguard money in client escrow account and misuse of trust money in connection with representation of client who had filed bankruptcy petition. Finding violations MRPC 1.1, 1.3, 1.4, 1.15 and 5.3, attorney was indefinitely suspended.);

Attorney Grievance Comm'n v. Granger , 374 Md. 438, 823 A.2d 611 (2003) (Attorney collected partial fee from client ($200) and failed to file her Chapter 13 bankruptcy causing her to lose her home but mistakenly represented that the bankruptcy had been filed when it was not. Attorney made several misrepresentations during bar counsel's investigation. Finding violations of MRPC 1.1, 1.2, 1.3, 1.4, 8.1 and 8.4, attorney was indefinitely suspended);

Attorney Grievance Comm'n v. Harris , 371 Md. 510, 810 A.2d 457 (2002) (Attorney represented client in a Chapter 7 which resulted in a foreclosure of client's home, which attorney bought at auction and allowed client to rent back. After non-payment of rent, attorney sued client for back rent, obtained a judgment, and garnished client's wages. Despite this, client sought attorney's advice regarding employment-related claims he wished to pursue and a $11,000 settlement of those claims was reached after which attorney retained full recovery as his fee but paid the client $3,000 as a “gift” and paid him another $1,200 for services the client rendered to the attorney's son. The Court concluded that the attorney had a conflict of interest in being the client's landlord and in representing him in the other legal matters. It also found the $11,000 fee for the employment representation excessive. It further found a conflict in the attorney purchasing the client's home at foreclosure while representing the client in a bankruptcy. Finding violations of MRPC 1.5, 1.7, 1.8 and 8.4, attorney was indefinitely suspended.);

Attorney Grievance Comm'n v. Jaseb , 364 Md. 464, 773 A.2d 516 (2000) (Attorney's mistaken belief that she filed a bankruptcy case for a pro bono client, and her representation to a circuit court judge that the case was filed when it was not, was a violation MRPC 5.3 and resulted in a public reprimand due to her inexperience and lack of supervision by other attorneys at her firm. In addition, Court found that the attorney did not adequately supervise her law clerk, in violation of professional conduct rule on responsibilities regarding non-attorney assistants, where attorney never discussed nor confirmed with a newly-hired law clerk whether a bankruptcy case had been filed. Finding only one violation and based on attorney's inexperience, attorney received a public reprimand.);

Attorney Grievance Comm'n v. Kapoor , 391 Md. 505, 894 A.2d 502 (2006) (Attorney violated MRPC 1.15, 3.3, 8.4, Maryland Rule 16-604, and Md. Bus Occ. Code Ann. § 10-304, 8.15.5 by filing a bankruptcy for a client during a period when the attorney was decertified from practicing law as a result of a failure to pay the Client Protection Fund, for failing to deposit into escrow a $50 deposit toward a Chapter 7 fee of $350, and for misrepresenting to the Bankruptcy Court and Bar Counsel that he did not receive the $50 compensation from the client. Finding violations of 1.2, 1.3, 1.5, 1.15, 3.3, 5.5, 8.1, 8.4, Maryland Rule 16-604, and §§ 10-304 and 10-306, attorney was disbarred.);

Attorney Grievance Comm'n v. Lee , 393 Md. 546, 909 A.2d 895 (2006) (Attorney violated MRPC 1.3, 1.4, 1.16, 3.2, 8.1 and 8.4 for numerous omissions in connection with his representation in a Chapter 7 case. Attorney failed, inter alia , to appear timely at a 341 meeting, failed to produce documents to the trustee which were entrusted by the debtor to the attorney, failed to respond to client inquiries, failed to refund unearned fees, and failed to respond timely to Bar Counsel's letters and Statement of Charges. Attorney was indefinitely suspended.);

Attorney Grievance Comm'n v. Steinberg , 395 Md. 337, 910 A.2d 429 (2006) (Attorney who misrepresented to client that he filed a Chapter 13 bankruptcy when he had not, who filed a Chapter 7 the day after the foreclosure sale without the client's consent, and who further misrepresented in motion to set aside foreclosure sale of client's home that client did not have notice of the sale, violated the rule of professional conduct that required that an attorney not bring or defend a proceeding unless there was a good faith basis for doing so that was not frivolous, where attorney was informed by client on several occasions of the impending sale. Finding violations of MRPC 1.1, 1.2, 1.3, 1.4, 1.5, 1.8, 1.16, 3.2, 3.4, 4.1, 8.1 and 8.4, attorney was disbarred.);

Attorney Grievance Comm'n v. Sutton , 394 Md. 311, 906 A.2d 335 (2006) (Attorney failed to file a complaint to foreclose client's right of redemption to property, which resulted in client's tax certificate becoming void, failed to obtain a deed for second property, and failed to communicate with client and thus violated the MRPC requiring a lawyer to provide competent representation to a client, act with reasonable diligence when representing a client, keep a client reasonably informed about the status of the matter, and refund any advance payment of fee or expense that has not been earned or incurred. Finding violations of MRPC 1.1, 1.3, 1.4, 8.1 and 8.4, attorney was disbarred.);

Attorney Grievance Comm's v. Tinsky , 377 Md. 646, 835 A.2d 542 (2003) (Attorney did not act with reasonable diligence in his representation of client by delaying for over two years after he was retained the filing of a bankruptcy, by failing timely to supplement the filing at the request of the court, and by failing to file a motion to strike the dismissal of the case. Finding violations of MRPC 1.1, 1.3, 1.4, 1.16 and 8.4, attorney was disbarred.);

Attorney Grievance Comm'n v. Zakroff , 387 Md. 603, 876 A.2d 664 (2005) (Attorney intentionally left off of client's bankruptcy schedules an asset worth more than $20,000. Attorney was disbarred for making false statements to a tribunal, engaging in dishonesty, and engaging in conduct that was prejudicial to the administration of justice by intentionally hiding a client's claim from the bankruptcy estate, where attorney was aware that his firm filed the bankruptcy on client's behalf, but despite this knowledge he continued to negotiate another claim on client's behalf without mentioning the bankruptcy or the need to include the bankruptcy trustee in any settlement. Finding violations of MRPC ).

Secondary Authorities on Attorney Ethics and Bankruptcy

John D. Ayer, How To Think About Bankruptcy Ethics , 60 Am. Bankr. L.J. 355 (1986).

C.R. Bowles, Ethical Issues in Representing Debtors in Individual Chapter 11s Under BAPCPA: Part I , 25-Jan Am. Bankr. Inst. J. 46 (2007);

Jean Braucher, The Challenge to the Bench and Bar Presented by the 2005 Bankruptcy Act: Resistance Need Not be Futile , 2007 U. Ill. L. Rev. 93 (2007);

Scott Brown, How to Avoid “Ethically Incorrect Behavior:” Survival Tips Nobody Taught You in Law School , 24-AUG Am. Bankr. Inst. J. 18 (2005);

Erwin Chermerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 , 79 Am. Bankr. L.J. 571 (2005);

Benjamin F. Davis, “ Before the Law Sits a Gatekeeper: ” Finding Brilliance in the Attorney Liability Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act , 23 Emory Bankr. Dev. J. 285 (2006);

Rafael Efrat, The Evolution of Bankruptcy Stigma , 7 Theoretical Inquiries L. (2006);

Alan Eisler, The BAPCPA's Chilling Effect on Debtor's Counsel , 55 Am. U.L. Rev. 1333 (2006);

David S. Kennedy, et al., Professionalism: Dealing with Unprofessional Conduct in Bankruptcy , 36 U. Mem. L. Rev. 575 (2006);

Deborah Landis, Negligence, Inattention, or Professional Incompetence of Attorney in Handling Client's Affairs in Bankruptcy Matters as Ground for Disciplinary Action--Modern Cases , 70 A.L.R.4th 786 (1989);

Panel Discussion, “ Too Hot to Handle ”: Hot Topics under BAPCPA B New Published and Unpublished Decisions , 070125 ABI-CLE 247 (January 25-27 2007);

Nancy Rapoport, The Intractable Problem of Bankruptcy Ethics: Square Peg, Round Hole , 30 Hofstra L. Rev. 977 (2002);

Charles Riecke, et al., BAPCPA's Effect on Pro Bono Assistance , 26- Mar Am. Bankr. Inst. J 28 (2007);

Jack Seward, Today's Bankruptcy Litigation Calls for Greater Technological Competency: Understanding Electronic Data Discovery , 26-MAR Am. Bankr. Inst. J. 34 (2007);

Catherine E. Vance, et al., Nine Traps and One Slap: Attorney Liability Under the New Bankruptcy Law , 79 Am. Bankr. L.J. 283 (2005);

Robert Wann, Jr., “ Debt Relief Agencies: ” Does the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Violate Attorneys' First Amendment Rights? , 14 Am. Bankr. Inst. L. Rev. 273 (2006);

David B. Wheeler, et al., A Fully Informed Decision: Reaffirmation, Disclosure and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 , 79 Am. Bankr. L.J. 789 (2005);

Mary Jo Wiggins, Debt Relief Agencies, Assisted Persons, Disclosure, and Advertisements Under Sections 526, 527, and 528 of the 2005 Bankruptcy Reform Act: An Overview of Selected Issues , SM048 ALI-ABA 85 (2006).

* Alan J. Belsky is the managing partner of Belsky, Weinberg & Horowitz, LLC. He is a trial lawyer representing individuals in all aspects of litigation including trials, adversary proceedings, and appeals. He founded the firm's bankruptcy department and continues to manage that department. He is a member of the Peer Review Panel of the Attorney Grievance Commission and is a founding member of the Maryland State Bar Association Consumer Bankruptcy Section. He also serves as a Director of the Bar Library Company of Baltimore City and is a member of the Bankruptcy Bar Association of Maryland, J. Dudley Diggs, Inns of Court, Maryland Trial Lawyers Association and the American Association of Justice. Mr. Belsky graduated from the University of Baltimore cum laude in 1991 where he served as editor-in-chief of the University of Baltimore Law Review. He is married with two children and lives in Howard County, Maryland.

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