THE ETHICS OF REPRESENTING DEBTORS &
CREDITORS IN BANKRUPTCY

consumer bankruptcy assistance in return for compensation in certain circumstances as "debt relief agencies." The amendments impose restrictions on debt relief agencies that include specific requirements for advising clients about valuation of assets, compilation of creditor lists, determination of exemptions, determination of types of income, etc. and providing specific written notices. The restrictions include not making untrue or misleading statements, or advising clients to make such statements, and not misrepresenting the services to be provided or the benefits and risks of filing bankruptcy.

1. All too often, courts have dismissed bankruptcy filings on bad faith grounds, including those intended solely for delay, with no realistic possibility of reorganizing a debtor under Chapter 11, filings merely to resolve two-party disputes, and repeated filings. Section 707(b) of the Code specifically authorizes the court to dismiss petitions by consumer debtors that are considered a "substantial abuse" of Code provisions. Counsel are ethically obliged not to file such petitions, and may be sanctioned for doing so. Counsel may likewise be sanctioned if the debtor is ineligible for chapter 13, but counsel excludes debts from the schedules to show apparent eligibility.
2. Efforts to stave off a bankruptcy filing may have resulted in preferences or fraudulent conveyances. In some cases, transfers to defeat provisions of the Bankruptcy Code or give a creditor advantages in consideration of promises in connection with the case may be illegal. Counsel may not assist a client in any fraudulent conveyance, including by suggesting spending assets before filing without any discussion of

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