Is a Bankruptcy Lawyer Required to Investigate the Facts Contained in a Bankruptcy Petition?

18 Sep Is a Bankruptcy Lawyer Required to Investigate the Facts Contained in a Bankruptcy Petition?

Sections 707(b)(4)(C) and 707(b)(4)(D) of the bankruptcy code, as amended by the 2005 Bankruptcy Reform Act, provide as follows:

(C) The signature of an attorney on a petition, pleading, or written motion shall constitute a certification that the attorney has–

(i) performed a reasonable investigation into the circumstances that gave rise to the petition, pleading, or written motion; and

(ii) determined that the petition, pleading, or written motion–

(I) is well grounded in fact; and

(II) is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law and does not constitute an abuse under paragraph (1).

(D) The signature of an attorney on the petition shall constitute a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect.

Does this mean that a bankruptcy lawyer is required to verify the accuracy of the information contained in the client’s bankruptcy petition?

For example, is the lawyer required to obtain a credit report, or perhaps multiple credit reports, to verify that the client has listed all of his or her debts? Is the lawyer required to perform an “asset search,” using a commercial service such as Lexis-Nexis? Is the lawyer required to check the land records at the county courthouse to see what real estate the client really owns? If so, should the land records of every county in the state be checked? Or every county in the United States? Is the lawyer required to check the motor vehicle records to see what vehicles the client owns?

The average bankruptcy client does not have the money to pay for an attorney to perform unnecessary services, or to pay the fees associated with obtaining unnecessary services of any kind. Attorneys should charge clients for the cost of verifying the client’s information only when it is necessary for the attorney to do in order to perform a “reasonable investigation” into the facts giving rise to the bankruptcy, as required by section 707(b)(4)(C)(i).

It should be recognized that attorneys disagree on whether sections 707(b)(4)(C) and (D) require asset searches, credit reports or other verification. However, it is difficult to see how the language of these sections imposes such requirements. The law simply requires an “inquiry” and a “reasonable investigation,” which can be performed by discussing the matters with the client, and by asking the client to be diligent in compiling the information to be used in preparing the bankruptcy petition.

The real question may be thus: given the complexity, or the simplicity, of the particular client’s financial affairs, does the lawyer believe it would be prudent to conduct an asset search, obtain credit reports, or to otherwise independently investigate the client’s financial affairs? If so, then by all means such an investigation ought to be performed. The answer to the question of whether the lawyer should perform an investigation, then, is to be found in the the lawyer’s opinion of whether it is necessary in the circumstances, rather than being a requirement imposed by sections 707(b)(4)(C) and (D), to be followed in every case.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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