The Risk Manager, Fall 2005

Malpractice Avoidance: Steps taken to evaluate substantive areas of practice or methods of practice and to make decisions about whether to avoid or eliminate certain areas of law because of the malpractice risks and exposure involved.

The new bankruptcy act is described as a “labyrinth of administrative, procedural, and substantive requirements”. It has made bankruptcy practice and adjudication more time consuming and expensive for clients, more labor intensive for lawyers and judges, while increasing malpractice exposure for lawyers. If this was not enough, the legislation is frequently criticized for being poorly written and ambiguous.

CCH offers a special eight page report on this new law in “Bankruptcy Overhaul Enacted – New Rules for Bankruptcy Implemented” available on its Web site at 04-21.pdf. It provides a useful overview of the law and flags significant changes. Of particular interest to lawyers are those provisions that:

  • Require the debtor’s lawyer to certify the accuracy of factual representations in bankruptcy petitions and schedules -- errors in these representations can lead to civil penalties and liability for trustee costs and fees for the lawyer.
  • Require the debtor’s lawyer to certify the debtor’s ability to pay under reaffirmation agreements. This potentially opens the lawyer to claims from creditors when the debtor defaults.
  • Include lawyers in the category of “debt relief agency” with the result that debtors’ lawyers must comply with client disclosure requirements that include alternatives to bankruptcy. They must also state in advertising and other communications an announcement that: “We are a debt relief agency.”

Even if you do not practice bankruptcy law it may affect your practice. For example, the new law has implications for employee-benefits lawyers, real estate lawyers involved with reorganizing a single-asset real estate business, and lawyers representing active-duty military personnel with debt problems. This new law should be given a high priority in your CLE program regardless of how much bankruptcy law you practice.

Sources for this item in addition to the CCH article are “Bankruptcy bar braces for impact of new code,” Peter Geier, The National Law Journal, page 1, 9/5/2005; “Bankruptcy Law – Costs of the New Act,” Craig Rankin & Christopher Alliots, The National Law Journal, page 13, 4/11/2005; and “Debtor’s attorneys see red in Senate bill,” Marcia Coyle, The National Law Journal, page 1, 3/14/2005.