THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY

tion 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.⁴⁰³ Counsel may likewise be sanctioned if the debtor is ineligible for chapter 13, but counsel excludes debts from the schedules to show apparent eligibility.⁴⁰⁴

1. 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.⁴⁰⁵ Counsel may not assist a client in any fraudulent conveyance, including by suggesting spending assets before filing without any discussion of restrictions,⁴⁰⁶ and must withdraw if the client persists in going forward with such a scheme.⁴⁰⁷ Counsel must persuade the client to disclose any fraudulent conveyances to the court, at least where requested on the debtor's schedules and statement of affairs, and seek to recover them if possible before the petition filing.⁴⁰⁸ Unlike other client communications, such illegality is not protected by client confidentiality restrictions, and if the client refuses to allow such disclosure, the attorney must withdraw from the representation.⁴⁰⁹
2. The 2005 Bankruptcy Code amendments require that lawyers providing consumer bankruptcy assistance in return for compensation, "debt relief agencies", not advise a client to incur more debt in contemplation of filing a bankruptcy petition or to pay bankruptcy attorneys' fees or petition preparer's fees.⁴¹⁰ 7. The prospective debtor may wish to transfer assets into exempt types of assets to protect them from creditor access in the bankruptcy court. Some courts have held that a potential debtor may transfer assets into exempt forms so long as it is done for reasons other than the express intent of keeping the assets from creditors.⁴¹¹ When prospective debtors have deliberately transferred assets from one form into another exempt form (even on advice of counsel) in anticipation of bankruptcy, some courts have denied the debtor a discharge.⁴¹² Factors considered in evaluating denial of discharge include (1) the amount exempted, comparing (a) the amount of the debt the exempted assets would have repaid,