WASHINGTON – The Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys have filed suit challenging the U.S. Trustees interpretation of attorneys as debt relief agencies under the Bankruptcy Abuse Prevention and Consumer Protection Act.
The plaintiffs are asking the court to clarify whether attorneys were intended to be included under the definition of a debt relief agency after the U.S. Trustees have filed briefs in more than one case stating that Congress intended attorneys to be covered (In re: Attorneys at Law and Debt Relief Agencies in the U.S. District Court for the Southern District of Georgia, Savannah Division, for example).
Tom Gugliotti of Updike Kelly & Spellacy PC, spokesperson for the CBA on the matter, explained, "This lawsuit involves very specific portions of the new law.It deals with the relationship between the attorney and the client." It is not challenging the new law "carte blanche," he emphasized.
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Credit union groups lobbied hard for bankruptcy reform and were strong supporters of the legislation that had fairly strong bipartisan support in the end.
Debt relief agencies have very specific restrictions on them as to what the can and cannot tell consumers, among other things, Gugliotti said.
These, in some instances, are misleading or inaccurate, according to NACBA President Henry Sommer, or inconsistent with what lawyers are required to do.
A memorandum in support of the preliminary injunction sought lists a dozen alleged inaccuracies in notices required to be provided to consumers. "Lawyers are kind of confused in trying to deal with it.Some are not complying with it and they're worried they're going to be sued or sanctioned," he said. The law is "written incredibly poorly" Sommer lamented, blaming creditors' unwillingness to change any of the language.
On the other hand, Gugliotti explained, CBA has heard anecdotally attorneys saying, "This is just too risky. I'm just not going to practice in this area any more." It could reduce consumers' options for attorneys, he added. The CBA is a voluntary, not-for-profit association of lawyers and judges dedicated to promoting public service and advancing the principles of law and justice through its 11,000 members. NACBA, established in 1992, is dedicated to serving the interests of consumer bankruptcy attorneys and protecting the rights of consumer debtors in need of bankruptcy relief. All this confusion comes at a time when bankruptcy filings are again on the rise. After a 20-year low during the first quarter, as reported by Lundquist Consulting, consumer bankruptcy filings are climbing. "While the decrease in filings in the first quarter is good news, bankruptcy rates appear to be increasing steadily towards previous levels," founder Chris Lundquist said. "Since November of 2005, filing rates have increased four-fold and now average over 2,000 per day."
He explained that the percentage of Chapter 13 filings, which debtors were supposed to be pushed toward following the Oct. 17 effective date of the new law, has been declining steadily from nearly 60% in November 2005, to less than 40% in March 2006. Lundquist commented, "It appears that the consumers who filed Chapter 7 early, who are now absent from the court system, are affecting the current bankruptcy rates."
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