Limited Scope Representation: An Issue of Access to the Bankruptcy ...

The problem of the high cost of consumer bankruptcy representation is well documented. The recent Consumer Bankruptcy Fee Study revealed a 24% increase in attorney fees post-BAPCPA for chapter 13 cases, with mean fees in some jurisdictions approaching $5,000. For no-asset cases filed under chapter 7, mean attorney fees have increased 48%—as high as $1,500 at the mean in some jurisdictions. 

For many chapter 13 filers, only a portion of the fee is paid to the attorney up front, with the fee balance to be paid through the plan. In a chapter 7, attorney fees must be paid up-front and in full leading many consumers in financial distress to simply conclude that they do not have the money to pay an attorney and to file their petition pro se. The Fee Study found that 5.8% of all chapter 7 cases are filed pro se. This statistic is reflective of a national random sample of cases filed post-BAPCPA. The incidence of pro se filings, however, is considerably higher in many jurisdictions. In the ten courts with the greatest number of pro se cases, 9.5% to 27.1% of all cases are filed without attorney representation.

The problem of pro se representation is compelling. Consumers typically lack the knowledge, judgment and skill needed to present their case, raise valid defenses and to make informed decisions. Moreover, creditors may have an interest in an expedited settlement of the matter, but an unrepresented and confused debtor may thwart such efforts.  In the name of pragmatism, judges may attempt to guide unsophisticated debtors through the process, but such interventions run the risk of compromising the essence of the adversarial system: judicial neutrality.

The burden that pro se debtors place on the court system has been widely recognized. Judges, trustees, and court staff have detailed the extra time and system resources eaten up by aiding pro se debtors who are attempting to navigate the bankruptcy process. Uninformed and misinformed self-representation unnecessarily increases the complexity of cases and the time needed to resolve them. Moreover, the likelihood that a judge will receive the full information needed to reach fair decisions is reduced. The high volume of pro se cases filed in some jurisdiction starkly reveals a disconnect between the idealized version of the bankruptcy system and the way it currently operates. After carefully considering problem of pro se debtors and their access to justice, the Task Force developed a proposal for “best practices” for Limited Scope Representation (“LSR”). 

LSR on behalf of a consumer debtor typically consists of the provision by an attorney of a subset of legal services in connection with the filing of a consumer bankruptcy case. In contrast to the plenary representation of a debtor, where the lawyer is paid a full fee to represent a debtor with respect to all aspects of his bankruptcy case—from pre-filing counseling to post-discharge proceedings, LSR is undertaken to achieve a lower overall cost, and typically in lieu of filing pro se or filing with the assistance of a petition preparer.  This arrangement allows for legal representation by an attorney with costs contained.

The Task Force recommended a detailed framework for LSR representation in chapter 7 consumer cases only because of chapter 13’s complexity and the difficulty of distinguishing between “basic” and the “full service” elements in chapter 13s. 

The linchpin of the LSR best practices proposal is the client’s informed consent. Informed consent requires that the client knows of and understands the risks and benefits of the limited representation: the reasonableness of a representation cannot be evaluated without the client's informed consent. For a debtor to provide valid, fully informed consent to limited services representation, the lawyer must not only describe the services that will be provided, but must also fully explain the services that are omitted from the representation, including the materiality of these services and the potential ramifications of their omission. The Task Force drafted a model informed consent agreement, laying out, in detail the specific information needed to understand what services are being provided for what fee.

We know that this proposal is controversial – but we also know that pro se debtors compromise the utility of the consumer bankruptcy system. We welcome your reactions.