New bankruptcy law sends lawyers out the door

The new federal bankruptcy law that takes effect Oct.

17 is causing some lawyers to rethink their willingness to volunteer for legal assistance work or handle bankruptcy cases at all.

"Many, many,many lawyers from small firms and sole proprietorships have quit bankruptcy practice," said Ann Price McCarthy.

In private practice in Carson City, she does pro bono work for Volunteer Attorneys for Rural Nevada.

But she no longer will do bankruptcy for the volunteer organization.

The reason? "A provision of the law puts the burden of proof on us," she said."We are now personally liable for omissions in their listed assets." That means an attorney would have to audit the client's accounts, and know all his affairs.

Said Reno attorney Patricia Phair,"If our clients lie to us and they do; they hide all sort of things creditors can sue us for the harm they suffered.

Statements I once took at face value - now I want photographs.An appraisal on a house.

A credit report." McCarthy said,"My insurance carrier told me that they would raise insurance premiums if I did not quit bankruptcy.Almost every firm in Reno has informed Washoe Legal Service that they would do no more bankruptcies.

It's going to have enormous social consequences."

Odessa Ramirez, program director at Volunteer Attorneys for Rural Nevada, said, "Many attorneys who provided pro bono services have indicated they will no longer provide that service.

The board will discuss whether to curtail that service." Nathan Zeltzer, a Reno bankruptcy attorney, said he will sit back and wait to see how the courts interpret the new law.

"There's a lot of ambiguity in the wording of the law," he said, noting it's the first major revision of bankruptcy law since 1978.

Zeltzer agreed the new law holds pitfalls for attorneys.

If, for example, a client lies to a bankruptcy trustee, the trustee can go after the attorney for fees.

Until the dust settles, he's only taking cases where everything is complete, because all filing must be finished before the new law takes effect.

The new law causes uncertainties for many in bankruptcy practice.

"None of us know what our cash flows are going to look like," said Phair, who feels she has no choice but to continue her bankruptcy practice in Reno.

"That's our meat and potatoes," she said, noting about 90 percent of the firm's work is in bankruptcy.

Until the new law takes effect, Zeltzer said, he is filing cases at gangbuster rates.

Because bankruptcy attorneys are so busy, he says, many of them have been able to raise their rates.

Talking with a reporter last week, Phair said,"I've taken 80 calls today, asking: 'Can I file now?' I say no.Nobody's taking any more clients.

Two attorneys just called to say: 'We're referring clients to you; is that OK?' I said, hell, no!" Some of the new rules that are causing the rush: a debtor must attend credit-counseling class within six weeks before filing.And the debtor must take a money management class after filing.

The new law extends the time between filing Chapter 7 bankruptcies from six to eight years.

It prohibits filing another Chapter 13 bankruptcy if one was filed within two years previously, or if a chapter 7 was filed within four years.