2006 NORTON BANKRUPTCY LAW SEMINAR MATERIALS
THE ETHICS OF REPRESENTING DEBTORS AND CREDITORS IN BANKRUPTCY
By Susan M. Freeman
*This outline is adapted from Chapter 27, Ethical Responsibilities,
Norton Bankruptcy Law & Practice 2d (Thomson-West 2005)
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(b)
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the amount of the debt the remaining estate assets would repay, (c) the amount of income which is not property of the estate available to meet the purposes of the exemption statutes;413
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(2)
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whether the transfer was made when the debtor had financial troubles or just after an event resulting in substantial liability; (3) the use of business assets to pay individual debts secured by exempt property; (4) secrecy; (5) use of borrowed funds for the transfer; (6) "sharp dealing," such as arranging with creditors for a repayment moratorium while income is used for exemptions; and (7) whether the transfers to exempt property rendered the debtor insolvent.414 The guidelines between permissible and impermissible pre-bankruptcy exemption planning are fact-driven, finely drawn, and varied between the circuits and even within the circuits.415 The consequences for the client, defeat of the primary purpose of bankruptcy by losing a discharge, are so severe that attorneys must take special care to be knowledgeable, not advise or participate in deliberate concealment of assets from creditors, and insure that the client is well informed of the problems and risks inherent in any transfer.416
B. Illegal Client Conduct During a Bankruptcy Case.
1. Counsel is obligated both ethically and as an officer of the court not to file schedules and other disclosure documents he believes inaccurate.417 Thus, courts have cautioned that before filing a petition, schedules, etc., it is incumbent upon counsel to "take all possible steps to assure himself that the information listed in his client's petition is correct . . . inquire as to amounts owed [secured by any assets] and to explain the requirements of full disclosure . . . ."418 The 2005 Bankruptcy Code amendments provide that by signing a bankruptcy petition (presumably) in chapter 7 cases only, because referenced only in new § 707, the lawyer certifies that he has no knowledge after an inquiry that the information in the schedules filed with the petition is incorrect.419 The amendments incorporate into the Bankruptcy Code a variation on Bankruptcy Rule 9011 that is harsher than the current rule, and applies to every attorney's signature on a petition, certification, pleading or written motion.420 Among other things, the new Code language requries that all factual contentions be "well grounded" instead of having "evidentiary support," and that all legal arguments be made in "good faith," instead of
