A Non-Attorney Can Be Subject to Bankruptcy Code’s Requirements for Both a Bankruptcy Petition Provider and a Debt Relief Agency


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]

Section 110(a)(1) states that “a ‘bankruptcy petition preparer’ means a person, other than an attorney for the debtor or an employee of such attorney under the direct supervision of such attorney, who prepares for compensation a document for filing.”[xv]  Section 110(a)(1) requires bankruptcy petition preparers to notify debtors in writing that they are not attorneys and to provide their identifying information to the courts on any bankruptcy documents, sign all such documents, provide copies of the documents to the debtors, and file a fee disclosure statement.[xvi]  In addition, section 110 prohibits certain conduct by petitioner preparers that may be misleading or harmful to debtors, such as advertising bankruptcy petition preparer services with the word “legal” or similar terminology.[xvii]  Section 110 provides for the imposition of certain penalties applicable to persons who negligently or fraudulently prepare bankruptcy petitions.[xviii]  In Jonak, the district court concluded that Mr. Jonak was a bankruptcy petition preparer subject to section 110 because he prepared bankruptcy petitions and schedules for his clients.  Further, the Jonak court noted that by offering legal advice, Mr. Jonak engaged in the unauthorized practice of law.[xix]  Therefore, the Jonak court affirmed the bankruptcy court’s order requiring Mr. Jonak and his companies to surrender the fees paid to them by their clients, enjoining Mr. Jonak and his companies from committing any future violations of section 110, and awarding the UST liquidated damages.[xx]

Section 526 provides the restrictions on debt relief agencies.[xxi] Section 526(a)(1) prohibits agencies from failing to perform a service the agency has informed an assisted person it would provide, and section 526(a)(2) prohibits agencies from misleading an assisted person or making false statements to such person.[xxii]  Section 527 requires certain disclosures to an assisted person.[xxiii] Section 527(a)(1)-(2) requires the debt relief agency to provide notice to such person of the various chapters of bankruptcy available to them.[xxiv]  A debt relief agency must also provide notice to an assisted person stating that an attorney or debt relief agency must provide a contract specifying the work to be performed and the cost.[xxv]  Section 528 requires certain disclosures intended to combat misrepresentation in advertising.[xxvi]  Section 528(a)(3) requires a debt relief agency to clearly and conspicuously state in any advertisements that the services or benefits it offers are with respect to bankruptcy relief under the Bankruptcy Code.[xxvii]  This provision is expressly concerned with advertisements pertaining to “bankruptcy assistance services,” “the benefits of bankruptcy,” “excessive debt, debt, collection pressure, or inability to pay any consumer debt.”[xxviii]  On appeal, Mr. Jonak conceded that he operated ALC as a debt relief agency and it was subject to sections 526, 527, and 528.[xxix]  He further admitted to violating section 528(a)(4) regarding disclosing in advertisements that his businesses operate as debt relief agencies.[xxx]  Nevertheless, he argued that while that ALC was subject to sections 526-528, the company did not violate sections 526, 527, and 528(a)(3).[xxxi]  The district court affirmed the lower courts’ holding that Mr. Jonak caused his clients to make untrue or misleading statements in their bankruptcy documents in violation of section 526(a)(2).[xxxii]  The district court further held that Mr. Jonak violated section 527(d) by failing to retain a copy of the notices required under section 527(d) for two years.[xxxiii]  The district court also affirmed the lower courts’ holding that Jonak is a debt relief agency and violated section 528(a)(3) by failing to provide the required clear and conspicuous statement that the bankruptcy assistance services or the benefits of bankruptcy were with respect to bankruptcy relief under title 11 of the United States Code.[xxxiv]

Jonak v. McDermott is an important decision because it serves a cautionary tale to non-attorneys who want to provide bankruptcy advice to clients.  Specifically, Jonak demonstrates that such non-attorneys may be forced to return the fees they collect from clients and pay liquidated damages to the UST if they are found to have provided substantive bankruptcy advice to their clients.  In addition, Jonak illustrates the very limited role of bankruptcy petition providers.  In particular, Jonak effectively states the position that a non-lawyer “petition preparer” is limited to rendering only “scriven(er)/typing services,”[xxxv] greatly limiting the scope of legal conduct for petition preparers who are non-lawyers.  Finally, Jonak indicates that a non-attorney could be a debt-relief agency subject to the requirements of sections 526, 527, and 528.  Ultimately, the lesson from Jonak appears to be that providing bankruptcy services is best left to licensed attorneys.


[i] 511 B.R. 586 (D. Minn. 2014).

[ii] Id. at 603.

[iii] Id. at 602.

[iv] Id, at 599.

[v] Id. at 588.

[vi] Id. at 589.

[vii] Id. at 586-587.

[viii] Jonak, 511 B.R. at 593 (D. Minn. 2014).

[ix] Id.

[x] Id.

[xi] Id.

[xii] Id. at 594. 

[xiii] Id.

[xiv] Id. at 599.

[xv] 11 U.S.C §110(a)(1) (2012).

[xvi] 511 B.R. 586, at 595.

[xvii] Id.

[xviii] Id. at 595.

[xix] Id. at 593.

[xx] Id. at 599.

[xxi] See 11 U.S.C § 526.

[xxii] Id. at 599 (citing 11 U.S.C § 526 (2012)).

[xxiii] See 11 U.S.C. §527.

[xxiv] Id. at 599.

[xxv] Id.

[xxvi] Id. at 600.

[xxvii] 11 U.S.C. § 528(a)(3).

[xxviii] Jonak, 511 B.R. 586 at 600.

[xxix] Id.

[xxx] Id.

[xxxi] Id.

[xxxii] Id. at 602.

[xxxiii] Id. at 601.

[xxxiv] Id.

[xxxv] Id. at 596.