A number of reported decisions and anecdotal reports indicate that despite the efforts of Congress to curtail, if not eliminate, bankruptcy petition preparers (BPPs), this "industry" continues to thrive. BPPs run the gamut from the single office to at least one franchise operation, with Internet operators offering both mail order and online services. Training for those interested in becoming BPPs is even offered on the Internet.

The Problem

Bankruptcy petition preparers are governed by §110 of the Bankruptcy Code. Enacted as part of the 1994 amendments, §110 is designed to protect consumers from abuses by non-lawyer petition preparers—primarily a consumer protection measure unrelated to the practice of law. See In re Hobbs, 213 B.R. 207, 210 (Bankr. D. Maine 1997). BPPs not employed or supervised by any attorney have proliferated across the county. While it is permissible for a petition preparer to provide services solely limited to typing, far too many of them also attempt to provide legal advice and legal services to debtors. These preparers often lack the necessary legal training and ethics regulation to provide such services in an adequate and appropriate manner. These services may take unfair advantage of persons who are ignorant of their rights both inside and outside the bankruptcy system. H.R. Rpt. 103-835, 56 (1994).

Under §110, a bankruptcy petition preparer can be no more than a secretarial service. However, as noted below, by and large, BPPs are providing "do-it-yourself" guides as well as typing services. A "package" of products and services are often provided to the debtor. The current situation raises two questions. First, has §110 really worked? Second, if not, what is the solution to the problem identified by Congress in 1994?

As to the first, it appears obvious the answer is an emphatic "no." In an article published in the New York Times last August, it was reported that in the preceding seven years the Justice Department filed nearly 4,000 motions against BPPs. Despite the numerous motions by U.S. Trustees, frequently resulting in judicial decisions adverse to the BPP, BPPs continue to do more than type forms. A BPP runs into problems when he or she goes beyond inputting the raw data received from the debtor onto the appropriate forms—i.e., when the BPP also provides informational material, usually prepared in-house, for completing the forms. As Bankruptcy Judge A. Thomas Small recently observed:

In addition, it is unfair and deceptive to include these materials with a petition preparer's services because it gives the false impression that these documents are all that is required for the customer to decide whether to file and how to complete the forms. In re Moore, 283 B.R. 852 (Bankr. E.D.N.C. 2002).

As reported in the New York Times, legal ethics Prof. Steven Lubet of Northwestern University observed that the difference between what form preparers and lawyers do is the difference between providing information and giving advice. The fallacy in that observation is that the layperson, as Judge Small observed, tends to believe that the information given is all that is needed. In far too many cases, that is incorrect. Certainly, as Prof. Lubet is quoted as saying, "lawyers don't own the law" and there is "lots of room for non-lawyers to talk about the law." The problem is contextual: It is one thing to talk about the law in the abstract or in general, but quite another to talk about the law as applied to a particular set of facts involving the individual. This is especially problematic when a layperson talks about the law under circumstances where the listener is led to believe the speaker is speaking authoritatively. In that situation, the line has been crossed. It is particularly troublesome when the information is incomplete or misleading; the result can be disastrous. If so, the debtor's recourse is under §110(I) if the debtor can establish that the BPP engaged in a fraudulent, unfair or deceptive practice. If successful, the debtor can recover actual damages, plus $2,000 and attorney's fees.

While you may agree that the BPP industry is engaging in misleading and deceptive practices, one might also suggest that the term sanctioned by Congress, "bankruptcy petition preparer," is itself misleading and deceptive. In its ordinary and common usage, to "prepare" means to "make something ready," usually for a specific purpose; make suitable; or to put together according to a plan or formula. The American Heritage® Dictionary of the English Language, 4th Edition (2000); Webster's Revised Unabridged Dictionary (1996). To the layperson, the term "bankruptcy petition preparer" conveys an impression that the person purporting to prepare bankruptcy documentation knows and will guide the individual in the proper preparation and filing of the necessary documents. This is particularly true when the BPP also provides instructional material, tending to reinforce the impression. Of course, BPPs almost invariably provide a disclaimer to the effect that legal advice is not being provided and that the individual should consult an attorney. (Some even have a consulting attorney on retainer to whom the customer may be referred without additional charge—more deception, perhaps?) But the very act of providing instructions, definitions and guidance cancels this disclaimer. In a very real sense, under that scenario the debtor is providing the ingredients, but is relying on the BPP for the recipe. If the recipe is incorrect, the result is something less than a gourmet's delight.

A Solution

The battle to stem the tide of bankruptcy petition preparers recalls the Dutch legend of Hans Brinker and the leak in the dike, except here the system has been unable to stem the flood. As fast as one hole is plugged, another springs up until there are now more holes than fingers to plug them. The fact is that a substantial number of individuals in financial difficulty will either try to go it alone or seek the services offered by BPPs—some because they do not believe they can afford the services of an attorney, some because they mistrust the legal profession and others because they believe the assistance of an attorney is unnecessary. In any event, as long as there is a demand, there will be those willing to provide the services at a cost far less than an attorney would, or even economically could, charge.

At the risk of heresy, I suggest that rather than staying the course, it should be reversed. The resources being expended to eliminate BPPs could be used more productively in training and certifying petition preparers. Organizations such as ABI and the American Board of Certification could, perhaps should, provide the vehicle for implementation—ABI by producing educational materials and ABC by expanding its current certification program to include certification of BPPs. This would respond to the principal concern expressed by Congress quoted above—i.e., that BPPs lack the necessary legal training. Since bankruptcy is uniquely a federal forum, having a uniform national program is the logical approach. Bankruptcy judges, trustees and consumers alike could know that the certified BPP was at least minimally qualified. Of course, all is predicated on Congress amending §110, which, without strong support from insolvency professionals and consumer groups, is not likely to happen anytime soon.

ABI's Consumer Bankruptcy Committee, of which I have the privilege to serve as co-vice-chair, is presently undertaking production of a consumer bankruptcy primer for the new practitioner. That primer could easily be modified to serve as a training manual for BPPs as well as provide guidelines for use by the individual in preparing the documents. (Because there are some differences among the various circuits, it would be necessary to ensure that these differences are noted. In addition, since the exemption laws differ among the several states, it would be necessary to have a separate exemption supplement for each state.) There is no apparent reason why ABC could not develop a certification program using, e.g., the California paralegal certification program as a model. Calif. Bus. & Prof. Code, §§6450, et seq.

We have to recognize that even if BPPs did not exist, a great many of the 1.5 million consumer filers each year would not consult an attorney, and many of those who did would do so on a pro bono basis. Therefore, contrary to the assertions of some, it is not really a pocketbook issue for the legal profession. What we would achieve by the proposed program is a significant increase in systemic efficiency. The number of unassisted pro se filers would be reduced. Schedules would be more accurate, reducing the time that trustees would have to devote to §341 meetings. (Preparing the petition is not where the problem is; it lies with the documents that must accompany the petition, or follow it shortly—the schedules and statements. Schedules are the axle on which the bankruptcy process turns.) There would be fewer objections to claimed exemptions and certainly fewer complaints filed against BPPs, reducing the drain on already scarce and overburdened bankruptcy judicial resources.

Pro-bono Alternative

Although pro bono programs exist in all districts, the demand exceeds the supply of pro bono hours available. I have been actively involved in the pro bono program in Alaska for nearly 20 years. During that period, I authored a pro se bankruptcy handbook for those who qualify for pro bono services, but can find no attorney available. I have also conducted classes for the pro bono pro se program. For the high school graduate with no particular problems having a "garden-variety" chapter 7, the handbook and a two-hour class may suffice. However, many of those I come into contact with, either through the class or individual pro bono assignment, are not high school graduates; for some, English is a second language. It would take a miracle to get some of them to understand the arcane nuances of the Bankruptcy Code. The availability of a qualified BPP at an affordable cost to assist in understanding the schedules and instructions for completing them would be of substantial assistance.

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We have to recognize that even if BPPs did not exist, a great many of the 1.5 million consumer filers each year would not consult an attorney, and many of those who did would do so on a pro bono basis.

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Lawyers would reap an indirect economic benefit. Under the current system, when an attorney accepts a pro bono client, the attorney provides legal services without compensation. In addition, the attorney's office staff and resources are utilized for the function the BPP is permitted to perform—obtaining the information necessary for and typing the schedules. Acceptance of a pro bono assignment is more than forgoing compensation for services rendered, it also entails an out-of-pocket expense. Assume, on the other hand, that a qualified BPP does the intake work and prepares the documentation. The materials given to the debtor to complete the schedules would not have been prepared by the BPP, but prepared and peer-reviewed by experienced attorneys. In the garden-variety case, a properly trained BPP would be capable of obtaining the information from the debtor and completing the schedules accurately and completely. An adequately trained BPP would also be in a position to spot potential areas where an individual required competent legal assistance—e.g., lien avoidance, possible reaffirmation or exemption problems. The client could then be referred to a pro bono panelist, if qualified, spreading the available pro bono hours over a broader clientele base. If not qualified for pro bono assistance, the debtor could be strongly advised to seek legal counsel on a pay basis. Indeed, the rules might also provide that the BPP could not proceed further if the debtor declined to obtain legal advice in this situation. I hasten to add that I recognize that this too may present a problem in that the attorney may be providing limited representation, which may run afoul of current state bar ethics rules. (See In re Castonera, 270 B.R. 504 (Bankr. D. Idaho 2001), and In re Merriam, 250 B.R. 724 (Bankr. D. Colo. 2000), for two excellent discussions of limited representation.) However, there is no apparent reason this too could not be addressed by Congress.

Conclusion

There are those who will say that a program of this nature would be sanctioning the unauthorized practice of law. Perhaps they are right, but is not H & R Block also engaging in the unauthorized practice of law in preparing tax returns? (Anyone with even a passing familiarity with tax law can attest to the fact that the tax laws and treasury regulations are infinitely more complex than those associated with bankruptcy.) Indeed, the general counsel of We The People, a franchise operation, observed that We The People is somewhat where H & R Block was 40 years ago. There are also those who will maintain that only the individual states can sanction the program; indeed, there are those who maintain that §110 itself is an impermissible intrusion into an area traditionally left to the states to regulate—i.e., the unauthorized practice of law. This objection overlooks two fundamental precepts: (1) bankruptcy is a matter committed by the Constitution to Congress; and (2) courts have inherent authority to regulate those who practice before them. To the extent admission to practice in federal courts is limited to those licensed to practice in state courts, it is a matter of comity, not any written or unwritten rule of law. For example, a non-attorney may be admitted to practice before the U.S. Tax Court, also an Article I court (Tax Court Rule 200(a)(3)), and there is no requirement that a justice of the U.S. Supreme Court be a lawyer. Moreover, Congress has the power to regulate the practice and procedures of federal courts. Sibbach v. Wilson & Co., 312 U.S. 1, 9, 61 S.Ct 422, 85 L.Ed 479 (1941). It appears clear that Congress has the requisite authority to sanction certification of BPPs.

Participation by ABI and ABC in the proposed program would not be inconsistent with the purposes and objectives of either. ABI is an organization comprised of the entire insolvency community, and BPPs are, or should be, as much a part of that community as liquidators and credit managers. Moreover, perhaps the principal goal of ABI is to improve the quality of service provided by the insolvency community, which benefits the public. There are several hundred thousand individuals who would be the true beneficiaries of having available trained competent petition preparers. For ABC, certification of non-attorneys would be an incursion into a new area. Perhaps it is time for ABC to look beyond attorneys and to other members of the insolvency community who are also professionals for whom the bankruptcy process is a significant part of their functions.

Let the discussion begin.

Footnotes

¹ Co-vice-chair of ABI's Consumer Bankruptcy Committee. Return to article