By: Sharon Basiratmand
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
Recently, in Jonak v. McDermott,[i] a federal district court in Minnesota affirmed a bankruptcy court’s ruling that an individual and his companies functioned as bankruptcy petition preparers, regardless of what they actually called themselves.[ii] In particular, the district court affirmed the bankruptcy courts order enjoining the individual and his companies from “providing any bankruptcy assistance within the meaning of section 101(4A) to an assisted person for compensation, without giving all disclosures required by sections 527 and 528(a).”[iii] The district court also held that the bankruptcy court’s order disgorging the fees paid to the individual and his companies was proper.[iv] In Jonak, Edward Jonak was sole shareholder, president, and operating principal of Affordable Legal Services (“ALC”). [v] He advertised ALC as providing “low cost legal aid,” including services by “program attorneys.”[vi] Acting through ALC, he provided forms for clients to complete, assisted in preparing bankruptcy petitions on their behalf, answered questions about how to complete forms, and provided completed firms to a service to type into completed bankruptcy petitions and schedules.[vii] After investigating Mr. Jonak’s conduct in the underlying bankruptcy cases the United States Trustee (the “UST”) filed a complaint against Jonak and his companies, alleging that Mr. Jonak violated five provisions of section 110 of the bankruptcy code, all of which are applicable to petition preparers.[viii] The complaint also alleged that Mr. Jonak violated section 527 by failing to provide required notices and section 528 by failing to identify his company as a debt relief agency.[ix] In response, Mr. Jonak denied that section 110 applied, asserting that he did not physically prepare the bankruptcy documents and therefore was not a bankruptcy petition preparer.[x] He further contended that sections 526 to 528 did not apply, arguing that his company, ALC, was not a debt relief agency.[xi] After the UST moved for summary judgment, the bankrupty court found that Jonak and ALC functioned as bankruptcy petition preparers and that ALC qualified as a debt relief agency.[xii] Therefore, the bankruptcy court enjoined him from committing any future violations of section 110, ordered forfeiture and turnover of fees received, and awarded the UST liquidated damages.[xiii] On appeal, the district court affirmed.[xiv]