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Consumer Bankruptcy Attorneys Should Be Aware of Ethical Ramifications of Unbundling Services According to October ABI Journal Article

Alexandria, Va. — While consumer bankruptcy attorneys continue to draft limited-scope representation agreements to provide affordable service options for debtors, the practice of unbundling legal services also continues to raise ethical concerns, according to an article in the October edition of the ABI Journal. “Debtors’ attorneys must strike a delicate balance between protecting their economic interests while providing competent representation to clients,” Carrie Zuniga of Lakelaw (Waukegan, Ill.) writes in her article “The Ethics of Unbundling Legal Services in Consumer Cases.” “While courts have frowned upon unbundling services in bankruptcy, limited-scope representation is increasingly becoming the norm.” Since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Zuniga writes that consumer bankruptcy attorneys’ fees have increased by approximately 48 percent. “There is a growing segment of debtors in bankruptcy who do not qualify for legal aid but are unable to raise the necessary funds in order to retain an attorney in full before filing a chapter 7 case,” according to Zuniga. The practice of “unbundling” allows a debtor and his or her attorney to limit the scope of services to be performed in exchange for paying a smaller fee. For instance, some attorneys exclude their attendance at a § 341 meeting or negotiating a reaffirmation agreement so that their clients can pay reduced fees. Zuniga finds that case law continues to evolve, as debtors and their attorneys utilize alternative agreements to limit the scope of their representation with the idea that limited representation in bankruptcy is better than none at all. “Nothing in the Bankruptcy Code requires an attorney to represent a debtor in all matters, although most local rules indicate that the attorney should represent the debtor in all matters, with only some courts excluding adversary proceedings,” she writes. Unbundling raises serious ethical concerns in the context of bankruptcy, especially when it comes at the suggestion of an attorney "who often benefits from and has superior knowledge of the possible ramifications of excluding certain services.” Competent representation must be reconciled with an attorney’s ability to limit the scope of his or her representation, according to Zuniga. “Attorneys should be cognizant that if the service excluded in the fee agreement is a routine or fundamental aspect of the bankruptcy case, courts are less likely to find that the attorney has compiled with the relevant ethical rules,” Zuniga writes. “Additionally, attorneys should be aware that boilerplate language in fee agreements will not suffice, as the court will construe the agreement in the light that is most favorable to the debtor.” The relevant case law on unbundling may not seem particularly favorable to attorneys, but there is a budding consensus among the courts that debtors’ attorneys can limit their representation in a chapter 7 case as long as the ethical rules are followed. The Final Report of ABI's National Ethics Task Force suggests minimum standards for best practices in limited-scope representation, as well as a proposed rule and model fee agreements for debtors both with and without secured debts. “Debtors’ attorneys would be well advised to review the [ABI] Final Report before entering into a limited-scope agreement,” according to Zuniga. To obtain a copy of “The Ethics of Unbundling Legal Services in Consumer Cases,” published in the October issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org. To obtain a copy of the Final Report of ABI's National Ethics Task Force, please click here: http://go.abi.org/FinalEthicsReport. ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.