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The U.S. Bankruptcy Court for the Southern District of Florida entered a ruling on a new twist in the ongoing battle over the characterization of bankruptcy attorneys as Debt Relief Agencies.  The court, like several before it, held that debtor’s counsel was not a debt relief agency under the statute, and that the application of sections 526-528 to consumer bankruptcy attorneys was unconstitutional.

The Reyes court, though, was presented with a new twist on the issue.  In Reyes, the bankruptcy attorney was providing pro bono services.  Along with her petition, debtor filed a motion requesting a declaration or clarification that her attorney was not a debt relief agency under 11 U.S.C.S. 101 (12A).  The facts demonstrated that counsel had not accepted and would not accept payment from debtor, but that hours expended would be applied to fulfill the bankruptcy attorney’s annual pro bono requirement.

 Interestingly, the U.S. Trustee’s response suggested that the motion should be denied as unnecessary, and suggested that the plain language of the statute made it clear that debtor’s counsel did not fall within the statutory definition.  The court agreed with the UST that the language was clear, but not that clarification was unnecessary, citing the possibility that pro bono representation would be chilled by the risk of “branding the pro bono contributor a debt relief agency”.

The questions presented by the parties were limited to whether sections 526-528 were applicable to a bankruptcy attorney who received no payment or other valuable consideration for the assistance, and whether attribution of the hours to fulfill a pro bono requirement constituted “other valuable consideration”, but the court expanded the questions, pointing out that these issues necessarily presumed the constitutionality of sections 526-528 and their applicability to consumer bankruptcy attorneys.  Thus, the court addressed those issues before reaching the questions presented by the parties.

Like several other courts around the country, the Reyes court determined that the application of sections 526-528 to debtor attorneys would be unconstitutional, but then referenced the doctrine of avoidance and backed up to determine the case on other grounds.  With reference to several rulings in other jurisdictions, the Reyes court determined that Congress did not intend the definition of debt relief agency to apply to consumer bankruptcy attorneys, with this language:

Should we assume that Congress was mean-spirited and intended sections 526, 527 and 528 to provide a chilling effect on lawyers’ willingness to represent persons who have suffered financial misfortune, in most cases through no fault of their own, because of lack of health insurance, loss of employment or other tragedy?  Or should we assume that Congress was trying to provide “consumer protection,” as the title of BAPCPA suggests?  The Court believes the title says it all.

 

The court went on to say that even if the application of sections 526-528 to consumer bankruptcy attorneys was both intended and constitutional, pro bono services as described in this case would not fall within the definition.  The court focused on the use of the phrase “in return for” in determining that, although the application of the pro bono hours to fulfill a requirement might benefit the attorney, the statutory language clearly implied an exchange, wherein the debt relief agency received consideration from the debtor in return for assistance rendered.  Finally, the court determined that the fulfillment of the pro bono requirement, since it had no monetary, marketable, saleable, or pecuniary value, could not in itself constitute valuable consideration.