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The Debt Relief Agency Controversy

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Last year, the Supreme Court issued a decision holding that bankruptcy attorneys are included in the definition of debt relief agency as defined in the US Bankruptcy Code.  Many attorneys opposed the inclusion of attorneys in the definition because the term also includes non-attorneys and can potentially cause confusion for prospective clients.  Additionally, debt relief agencies must comply with certain requirements that potentially limit the advice that they may give to clients.

To me, being required to include a statement that I help people to file bankruptcy isn’t a problem because I do help people to file bankruptcy.  However, requiring the statement “we are a debt relief agency” can cause confusion because there are non-attorneys who are also “debt relief agencies.” I recently had a client who was confused about the debt relief agency language. I had to explain that we were bankruptcy attorneys and that we were simply required to also call ourselves debt relief agencies.

I understand how including a statement about helping people file bankruptcy is important because I have seen advertisements by bankruptcy attorneys that didn’t mention the word bankruptcy and made it seem as if they just helped with debt outside of bankruptcy.  However, a better statement would be “We are attorneys who help people file bankruptcy under the U.S. bankruptcy code.”  This helps to eliminate the problem with bankruptcy attorneys not using the word “bankruptcy” in their advertising while distinguishing attorneys from non-attorneys who prepare petitions. 

Another issue with the debt relief agency requirement is the provision requiring that an agreement be executed within 5 days after providing bankruptcy assistance.  To me, executing an agreement means that the client is retaining you as an attorney.  However, it appears that an agreement is required to be executed even if the prospective client doesn’t want to file bankruptcy.  Also, there are some people who decide not to file bankruptcy until one year after the initial meeting and the fees, costs, etc. may have changed.  Clearly, this provision can lead to some absurd results and should definitely be rewritten.  Perhaps it would be better to state that a fee agreement should be executed within 5 days after the debtor informs the attorney that he/she wants to proceed with filing bankruptcy.

Overall the 2005 changes to the bankruptcy code were poorly written under the guise of protecting debtors and creditors without regard to actual consequences.  In some ways, it’s good that the intended consequences were not realized.  The people who drafted the legislation really seemed to be trying hard to eliminate Chapter 7 bankruptcies, but there are definitely still a lot of people who are able to file Chapter 7.  Hopefully, the negative consequences of the legislation will change through future revisions.

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