THE ETHICS OF REPRESENTING DEBTORS &
CREDITORS IN BANKRUPTCY

counsel often has been allowed to represent the estate as special counsel to pursue matters where the estate and creditor have a common interest.

1. Even under the present, more liberal version of Section 327(c), courts have not allowed counsel to actively represent a creditor in the same bankruptcy case in which the trustee or DIP is represented, at least without full disclosure and an opportunity to object. And even where DIP counsel is not representing the creditor in connection with the bankruptcy case, allegiance to a creditor client may be considered to preclude counsel from investigating preferences, fraudulent conveyances, and so forth adequately, and to inhibit effective negotiation of a reorganization plan.
2. Model Rule of Professional Conduct 1.7 provides that a lawyer shall not represent a client if the representation will be directly adverse to another client or materially limited by the lawyer's responsibilities to another client unless (1) the lawyer reasonably believes the representation will not adversely affect the relationship and (2) each client consents after consultation, which shall include an explanation of the implications of common representation and the advantages and risks involved.
3. Model Rule of Professional Conduct 2.2 provides that a lawyer may act as an intermediary between clients if (1) he consults with each about the implications of common representation, including the advantages and risks, and effect on attorney-client privileges, and obtains each client's consent; (2) the lawyer reasonably believes the matter can be resolved on terms compatible with the clients' best interests, each will be able to

This outline is adapted from Chapter 27, Ethical Responsibilities, Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)