WSJ: New Bankruptcy Rules Limit Advice From Lawyers

[question everything]

The Wall Street Journal

FISCALLY FIT
By TERRI CULLEN

New Bankruptcy Rules Limit Advice From Lawyers
October 14, 2005

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Sec. 228 of the law provides that anyone giving professional advice on bankruptcy must inform clients upfront, in writing: "If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. … Although bankruptcy can be complex, many cases are routine. …"

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In my opinion, consumers should view this new disclosure rule as your garden-variety, behind-covering fine print. Debtors with very few assets or those who can't afford an attorney may choose to go the do-it-yourself route and use low-cost, bankruptcy petition-preparation services, but the more assets you have at risk the greater the need to consult a competent attorney. In fact, one of the most valuable recommendations an attorney might make may be that the debtor could be better off not filing. There are a number of good reasons to avoid, or at least put off, filing for bankruptcy. For example, people who are likely to remain in dire financial straits for a few more months -- while searching for a job or recovering from an illness, for example -- may end up incurring more debts they wouldn't be able to eliminate later if they filed for bankruptcy right away. More debt is up to you. Under the new rules, anyone designated a debt-relief agent won't be allowed to advise their clients to take on more debt.

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But there may be a time when borrowing more money is necessary to help clients get back on their feet financially, says Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys in Washington, D.C. For example, he says, having access to a reliable car may be essential for an unemployed worker to find a job. If your current clunker is on the verge of an expensive breakdown, it might be prudent to borrow to buy a new or late-model car now, before the bankruptcy filing destroys your credit score, he says. Under the new law, however, "an attorney would be prohibited from advising clients about incurring debt, even though it may be perfectly legal or lawful for them to do it," Mr. Sommer says. It remains to be seen how regulators will enforce this provision without violating attorney-client privilege. The National Bankruptcy Review Commission, which issued a 1997 report recommending many of the reforms that appear in the new law, suggested that trustees perform random audits of debtors' paperwork.

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But credit-counseling services, many of which get a portion of their financing from banks and credit-card companies, are in the business of assisting you in repaying your debt, not advising you to pile on more, so it's unlikely a consumer would get this kind of advice, says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies in Fairfax, Va. "There are circumstances, obviously, when a consumer in order to continue their livelihood may need to , and we may explain that that option exists, but we would never suggest that they do so," he says.

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URL for this article:
http://online.wsj.com/article/SB112915117816167065.htm (subscription)

[Village Idiot]

1. I think of "Rosalie Goes Shopping" whenever I hear this stuff...

http://www.imdb.com/title/tt0098224/

"When You're $100,000 In Debt, It's Your Problem. When You're $1,000,000 In Debt... It's The Bank's."


It's HYSTERICAL!!!