This is a case from our local bankruptcy court showing the ongoing prosecution by the US Department of Justice of paralegals and other non-attorneys who try to represent
debtors in bankruptcy cases. It discusses the limits of their representation as well as problems that can arise in using their services.
In re Ceasar Gaite
Bernales, Debtor.
Case No. SV 05-50082 MT, Chapter
7
UNITED STATES BANKRUPTCY COURT FOR THE CENTRAL DISTRICT
OF
CALIFORNIA, SAN FERNANDO VALLEY
DIVISION
2006 Bankr. LEXIS
1071
June 19, 2006, Decided
COUNSEL:
[*1] For Ceaser Gaite Bernales, Debtor: North Hollywood, CA.
Consumer
Credit Services of America, Inc., Bankruptcy Petition Preparer:
Jacksonville,
FL; Greg S. Bohl, Jacksonville, FL.
For Attn: Jennifer Braun, U.S.
Trustee: Office of the U.S. Trustee, Woodland
Hills, CA.
JUDGES:
MAUREEN A. TIGHE, United States Bankruptcy Judge.
OPINIONBY: MAUREEN A.
TIGHE
OPINION:
AMENDED MEMORANDUM OF DECISION AND ORDER
I.
Introduction 3
II. Preliminary Matters 4
III. Factual Background
4
IV. Discussion 9
A. Prohibition on Offering Legal Advice
9
1. What Constitutes Legal Advice 10
2. Whether New BAPCPA
Provisions Allow Limited Practice of Law 13
3. CCSA and Mr. Bohl
Improperly Gave Legal Advice 17
a. Filing Fee Advice 17
b.
"Facesheet Filing" 18
c. Motion for Extension of Time 22
d. Legal
Interpretation of the Deadline 22
e. Advice Regarding the Debtor's Duties
23
f. Means Test Advice 24
g. Inclusion of All Creditors
25
h. Questionnaire 26
i. Selection of Exemptions 27
j.
Website 27
B. Other Violations of § 110 Involving Lack of Required
Disclosures 29
1. 11 U.S.C. § 110(b)(2)(B) 29
2. 11 U.S.C. §
110(h)(2) 30
C. [*2] Sanctions 30
1. Fines or Damages to be Paid
to the Debtor and U.S. Trustee 30
2. Injunction 31
V. Conclusion
33
Introduction
This case presents the issue of the lawful
parameters of activities by
bankruptcy petition preparers following enactment
of the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 ("the
new Act" or "BAPCPA").
Immediately before the effective date and following
enactment of BAPCPA, the
bankruptcy courts have seen increased numbers of
unrepresented debtors file
bankruptcy. n1
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Footnotes - - - - - - - - - - - - - - -
n1 The proportion of debtors
unrepresented by counsel in this district rose
to approximately 27% of all
debtors last year. Shortly before the effective date
of the new Act, over 50%
of the debtors were unrepresented.
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This case involves Consumer Credit Services of
America, Inc. ("CCSA"), a
Florida-based bankruptcy petition preparer
corporation which operates
principally through its website: http://www.ccsofamerica.com/. n2
Advertising
nationally through multiple media outlets, CCSA attempts [*3] to
draw in the
business of potential bankruptcy debtors across the country. CCSA
and its
employee and officer, Greg Bohl, have repeatedly engaged in the
unauthorized
practice of law and violated the Bankruptcy Code provisions
regulating
bankruptcy petition preparers. They have given legal advice,
attempted to
explain court procedures, suggested filing strategies, used
unlawful
questionnaires, and selected exemptions. To make matters more
dangerous, CCSA
and Mr. Bohl have done so without any real apprehension that
what they are doing
is the unauthorized practice of law. To the contrary,
they appear to be quite
proud of their "innovative" business model and
strenuously argue that they are
one of the "legitimate" bankruptcy petition
preparers in the marketplace.
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n2 The name Consumer Credit Services of America,
Inc. is not to be confused
with Consumer Credit Counseling Service (CCCS), a
certified credit counseling
agency under 11 U.S.C. § 111. The choice of the
CCSA name and its similarity to
an established and well-respected non-profit
group raises additional questions
which were not explored here.
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II.
Preliminary Matters
The findings contained herein are based on the two
hearings held in this
matter and all documents filed in the court record.
CCSA has not appeared at any
of the several order to show cause hearings,
despite having been noticed of
them. Under LBR 2090-1(g)(1), "[a]
corporation, partnership or unincorporated
association may not file a
petition or otherwise appear without counsel in any
case or proceeding"
except in circumstances not relevant here. Under this rule,
Mr. Bohl's
telephonic appearance does not qualify as an appearance on behalf of
CCSA as
Mr. Bohl is admittedly no lawyer. n3 Thus, CCSA filed no objections and
made
no appearance.
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- - - - -
n3 Mr. Bohl acts like one, however. He often referred to his
experience
working for a local bankruptcy attorney and with bankruptcy
trustees. He also
frequently cited to and analyzed cases at the hearings, and
apparently is at
least a co-author of the website.
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Additionally, Mr. Bohl chose
not to appear in person, despite ample warnings
that [*5] he could not
testify telephonically. By not appearing in person, Mr.
Bohl was advised that
he waived the right to testify, put forward evidence, or
cross-examine any
witnesses who testified at the hearings. He was, however,
allowed to argue
telephonically and invited to file any documentary evidence he
wished, which
he did.
III. Factual Background
Sometime in mid-November 2005,
Ceasar Gaite Bernales contacted CCSA to assist
him in filing for bankruptcy.
He found CCSA, which is operated out of Florida,
online through its website.
Bernales's assigned "case coordinator" was Greg S.
Bohl, a non-attorney. n4
On November 22, 2005, CCSA e-mailed Bernales "emergency
bankruptcy
documents," including a Voluntary Petition, a Statement of Social
Security
Number, a Verification for Creditor Matrix, an Application to Pay
Filing Fee
in Installments, and an Order Approving Payment of Filing Fee
in
Installments.
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- - - - - - -
n4 Although Mr. Bohl's is a self-described "case
coordinator" and an employee
and officer of CCSA, he is also legally a
bankruptcy petition preparer himself
under 11 U.S.C. § 110(a)(1)
("'[B]ankruptcy petition preparer' means a person,
other than an attorney for
the debtor or an employee of such attorney under the
direct supervision of
such attorney, who prepares for compensation a document
for filing."). Here,
there is no dispute that Mr. Bohl prepared Bernales's
petition for filing for
compensation. Therefore, he is a bankruptcy petition
preparer. Note that the
language of section 110(a)(1) contains no explicit
exception for mere
employees of bankruptcy petition preparers as it does for
employees of
attorneys. Congress clearly knew how to exempt employees of
bankruptcy
petition preparers. Id.; see also 11 U.S.C. § 101(12A)(A) (providing
that
employees of bankruptcy petition preparers are not subject to the
"debt
relief agency" provisions). Congress's failure to exempt employees of
bankruptcy
petition preparers in section 110(a)(1) suggests that Congress had
no such
intent. Further, any contrary reading would allow individuals to more
easily
circumvent the provisions of section 110.
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- End Footnotes- - - - - - - - - - - - - - [*6]
On November 23, 2005,
Bernales filed the Petition and the Verification for
Creditor Matrix.
Bernales's request to pay the filing fee in installments was
denied. Bernales
promptly amended his petition and paid his filing fee in full.
That very
same day, the clerk's office issued a Notice of Case Deficiency
under 11
U.S.C. § 521(a)(1) and Bankruptcy Rule 1007 and a Case
Commencement
Deficiency Notice. These notices advised the Debtor to file the
remaining
required documents within fifteen days or face possible
dismissal.
After receiving these notices, Bernales and CCSA contacted
each other back
and forth by e-mail. CCSA advised the Debtor it would provide
the missing
documents "a day or 2 prior to the deadline." By December 8,
2005, the filing
deadline, Bernales still had not received the remaining
documents. Instead of
receiving the documents or a response, he received an
e-mail dated December 9,
2005, explaining that his case coordinator, Greg
Bohl, was out on medical leave.
This e-mail requested Bernales to fill out a
Questionnaire and return it by fax
to enable CCSA to prepare the remaining
bankruptcy documents. Bernales faxed
over a completed copy of [*7] the
Questionnaire.
After Bernales faxed over the Questionnaire, he asked CCSA
by email whether
he "need[ed] to contact the court to get an extension on the
15 day deadline."
CCSA replied with a question: "Is it possible that you can
file a request for an
extension of time to submit your bankruptcy schedules
and other documents until
Monday [December 12, 2005]? . . . That will
automatically extend the time until
it is ruled on and will give us more time
to finalize your documents." After
receiving this suggestion, the Debtor
lodged with the Court an Order Pursuant to
Extending Time to File the
Required Documents, which would extend the filing
deadline to December 16,
2005.
CCSA finally e-mailed some of the remaining documents to the Debtor
on the
afternoon of December 13, 2005. Bernales finally filed these documents
on
December 15, 2005. The Court signed Debtor's proposed order to extend the
filing
deadline on December 19, 2005, thus extending the deadline to December
16, 2005.
Notwithstanding the fact that Bernales filed additional
documents on December
15, 2005, Bernales still failed to timely file a
significant number of required
documents, including (1) Debtor's Credit
Counseling [*8] Certificate, (2)
Debtor's Debt Repayment Plan (if any), (3)
the current version of the
Declaration Concerning Debtor's Schedules
(Official Form B6), (4) all of Debtor
's payment advices or other evidences
of payment for the entire 60-day
prepetition period, (5) a Statement of
Related Cases (Official Form F 1015-2.1),
(6) a Notice of Available Chapters
(Official Form B201), (7) a Statement
Regarding Assistance of Non-Attorney
with Respect to the Filing of Bankruptcy
Case (LBR 1002-1), (8) a Declaration
and Signature of Non-Attorney Bankruptcy
Petition Preparer (Official Form
B19A), (9) a Notice to Debtor by Non-Attorney
Bankruptcy Petition Preparer
(Official Form B19B), and (10) a Disclosure of
Compensation of Bankruptcy
Petition Preparer. n5 On January 31, 2006, another
order to show cause was
issued re: dismissal for Debtor's failure to file these
required documents.
Having failed to cure this defect by the time of the hearing
on the order to
show cause, and having failed to appear at that hearing, Debtor
's case was
dismissed on February 16, 2006.
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n5 All of these forms had been available and
easily accessible for free at
the website for the U.S. Bankruptcy Court for
the Central District of California
(http://www.cacb.uscourts.gov/) in the
"Chapter 7 Package" section.
- - - - - - - - - - - - End Footnotes- - - -
- - - - - - - - - - [*9]
This case first came to the court's attention
when the Debtor filed a
proposed order to extend the filing deadline. Based
on the unusual nature of
that document and after a subsequent review of
Debtor's file, the court issued
an order to show cause re: 'Disgorgement of
Fees by Bankruptcy Petition Preparer
Consumer Credit Services of America,
Inc. and Greg S. Bohl" on December 20,
2005. This order requested that CCSA
and Mr. Bohl "explain how the petition was
prepared and who gave the Debtor
instructions to move for an order extending the
time to file the required
documents." The order also requested that they
"explain who prepared this
motion" (meaning the proposed order) and "why Debtor
's schedules, Form 22A
statement, statement of financial affairs, and employee
income record were
not timely filed."
A hearing was held on January 11, 2006. Bernales
personally appeared and Mr.
Bohl appeared telephonically. CCSA made no
appearance. Although the order to
show cause set a January 4, 2006 deadline
for written responses, a written
response in the form of a declaration was
not filed by Mr. Bohl until January
10, 2006, the day prior to the hearing.
n6 At the hearing it was determined what
[*10] while CCSA and Mr. Bohl may
not have been ghostwriting motions for the
Debtor, there were strong reasons
to suspect that CCSA and Mr. Bohl might have
been engaging in the
unauthorized practice of law in this case, in violation of
11 U.S.C. §
110(e), and might have violated other provisions of 11 U.S.C. § 110.
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n6 At the
hearing, Mr. Bohl attempted to justify his tardy response by
arguing that
CCSA rarely receives mail and so they do not check the mailbox very
often.
Given the time-sensitive nature of filing for bankruptcy, as this case
amply
demonstrates, CCSA is strongly encouraged to change its mail review
and
pick-up procedures.
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- - - - - - - - -
Determining that an evidentiary hearing would be
required, the hearing was
continued to February 15, 2006. Mr. Bohl was
invited to file a supplementary
response if he wished. The Debtor was
instructed to file with the Court the
e-mail exchanges between himself, CCSA
and Mr. Bohl, which he subsequently did
on January 20, 2006. Upon review
[*11] of the e-mail exchange and upon this
Court's determination that an
injunction against CCSA and Mr. Bohl may be
appropriate, the hearing on
February 15, 2006 was continued to March 15, 2006 to
give CCSA and Mr. Bohl
time to respond to the court's additional concerns. CCSA
and Mr. Bohl were
notified in the order continuing the hearing to be prepared to
show cause why
an injunction against their operating in the Central District of
California
should not be issued. Neither CCSA nor Mr. Bohl filed any
additional
documents. The United States Trustee, however, filed a request for
judicial
notice, which included orders from several other bankruptcy courts
enjoining
CCSA, Mr. Bohl and their associates from, inter alia, engaging in
the
unauthorized practice of law and assisting debtors in Texas.
At
the March 15, 2006 hearing, Mr. Bohl appeared by telephone. CCSA again
did
not appear, nor did the Debtor. The Assistant United States Trustee
appeared.
Mr. Bohl explained that he is a part-owner and officer of CCSA
and that
Claudia Fontalvo, another non-attorney, is also a part-owner and
officer. CCSA
is incorporated in Florida and is headquartered in
Jacksonville, Florida. They
have been in bankruptcy [*12] petition preparer
business for over three years.
Mr. Bohl argued that there were a lot of bad
bankruptcy petition preparers, but
that he is not one of them. n7 He asserted
that he and CCSA did nothing wrong,
and if anything was done wrong, it was
unintentional.
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- - - - -
n7 Mr. Bohl contended on the record that he and CCSA are in the
process of
shifting out of the bankruptcy petition preparer business into the
business of
selling software to help debtors and attorneys complete
bankruptcy-related
forms. However, the Assistant U.S. Trustee disclosed to
the court that similar
representations had been made to the Texas bankruptcy
courts during hearings on
similar orders to show cause. To date, now two
months after the March 15, 2006
hearing, neither Mr. Bohl nor CCSA appear to
have made any further attempts to
leave the bankruptcy petition preparer
business. This appears to be one of
several misrepresentations Mr. Bohl made
to the court, and evinces a fervent
desire to keep the business going by any
means necessary.
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- - - -
Mr. Bohl [*13] explained that CCSA uses "bankruptcy filler
software" to help
debtors complete their bankruptcy petition documents. He
argued that this
software simply replicates the official forms and makes it
easier for debtors to
complete them.
The court, Mr. Bohl and the
Assistant U.S. Trustee reviewed the remaining
facts of Bernales's case. Of
note, Mr. Bohl asserted that he and CCSA never
encouraged Bernales to file a
motion for extension and were not aware any such
motion had ever been filed.
The court and Mr. Bohl discussed the new debt relief
agency requirements and
how these relate to bankruptcy petition preparers and
their duties. Finally,
the court, Mr. Bohl and the Assistant U.S. Trustee
discussed in detail the
CCSA website.
III. Discussion
11 U.S.C. § 110 sets forth limits on
the conduct of bankruptcy petition
preparers in their assistance of debtors
in filing cases under Title 11. As
noted above, both CCSA and Mr. Bohl are
bankruptcy petition preparers under 11
U.S.C. § 110(a)(1). Therefore, the
limitations set forth in this section apply
to their conduct in this
case.
A. Prohibition on Offering Legal Advice
11 U.S.C. § 110(e)
[*14] expressly prohibits bankruptcy petition preparers
from offering legal
advice. "A bankruptcy petition preparer may not offer a
potential bankruptcy
debtor any legal advice . . . ." 11 U.S.C. § 110(e)(2)(A).
Legal advice, for
the purpose of this section, "includes advising the debtor (i)
whether (I) to
file a petition under this title; or (II) commencing a case under
chapter 7,
11, 12, or 13 is appropriate; (ii) whether the debtor's debts will
be
discharged in a case under this title; (iii) whether the debtor will be
able to
retain the debtor's home, car, or other property after commencing a
case under
this title; (iv) concerning (I) the tax consequences of a case
brought under
this title; or (II) the dischargeability of tax claims; (v)
whether the debtor
may or should repay debts to a creditor or enter into a
reaffirmation agreement
with a creditor to reaffirm a debt; (vi) concerning
how to characterize the
nature of the debtor's interests in property or the
debtor's debts; or (vii)
concerning bankruptcy procedures and rights." 11
U.S.C. § 110(e)(2)(B). While
these areas were all prohibited as a matter of
case law previously, the BAPCPA
[*15] amendments have now explicitly
detailed them as well in this section,
putting bankruptcy petition preparers
on greater notice of what constitutes the
unauthorized practice of law. The
above list is neither exclusive nor
exhaustive. Rather, it is a set of
examples explaining what constitutes legal
advice.
1. What Constitutes
Legal Advice
By prohibiting the offering of "legal advice," 11 U.S.C. §
110(e)(2) must be
understood as a general prohibition against the practice of
law by bankruptcy
petition preparers, except where otherwise permitted by
applicable law. "[S]tate
law is properly considered in determining whether
the unauthorized practice of
law has occurred in a bankruptcy court." In re
Boettcher, 262 B.R. 94, 96
(Bankr. N.D. Cal. 2001); see also Taub v. Weber,
366 F.3d 966, 968 (9th Cir.
2004). California law is quite explicit: "No
person shall practice law in
California unless the person is an active member
of the State Bar." Cal. Bus. &
Prof. Code § 6125. n8 According to case
law interpreting this statute,
practicing law means "the doing and performing
services in a court of justice
[*16] in any matter depending therein
throughout its various stages and in
conformity with the adopted rules of
procedure." Birbrower, Montalbano, Condon &
Frank, P.C. v. Superior
Court, 17 Cal. 4th 119, 128 (Cal. 1998). This
specifically includes offering
"legal advice . . whether or not . . . rendered
in the course of litigation."
Id.
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-
n8 Violation of Cal. Bus. & Prof. Code § 6125 is a misdemeanor
under Cal.
Bus. & Prof. Code § 6126. In addition to criminal penalties
under section 6126,
there are potential civil penalties under section 6126.5.
A person who engages
in the unauthorized practice of law is also potentially
subject to contempt
under section 6127.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
Section 110(k), a more seasoned
section of the Code, explains that "[n]othing
in section 110] shall be
construed to permit activities that are otherwise
prohibited by law,
including rules and laws that prohibit the unauthorized
practice of law." 11
U.S.C. § 110(k) [*17] . Cases have interpreted this
section to prohibit the
unauthorized practice of law by bankruptcy petition
preparers in a variety of
different factual situations. In re Pillot, 286 B.R.
157 (Bankr. C.D. Cal.
2002) involved an internet website that offered a
bankruptcy program to
assist debtors to file for bankruptcy. Among other things,
the program made
the debtor's exemption choice and provided her with legal
advice about the
bankruptcy process. The court found that this was the
unauthorized practice
of law and imposed sanctions. In In re Glad, 98 B.R. 976,
978 (9th Cir.
B.A.P. 1989), the court found that a nonattorney engaged in the
unauthorized
practice of law by "interview[ing] and solicit[ing] information
from the
debtor with regard to his financial status and [ILLEGIBLE
TEXT]assisting] the
debtor in preparation of the bankruptcy schedules." n9
- - - - - - - - -
- - - - - Footnotes - - - - - - - - - - - - - - -
n9 Glad also noted that
a "non-attorney will be subject to the requirements
of § 329 if he engages in
rendering 'legal services' to the debtor." 98 B.R. at
977.
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As will also
prove relevant to this case, in In re Powell, 266 B.R. 450, 452
(Bankr. N.D.
Cal. 2001), the court noted that "[a] non-lawyer engages in the
unauthorized
practice of law when he or she determines for a party the kind of
legal
document necessary in order to effect the party's purpose." See also
Boettcher, 262 B.R. at 96 (holding that it was the unauthorized practice of
law
for a bankruptcy petition preparer to prepare a "fill in the blank"
motions to
dismiss for a continuance for the debtor). n10
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- - - - - - - - Footnotes - - - - - - - - - - - - - - -
n10 Boettcher
also noted that "[i]t is of course just as unlawful for a
nonlawyer to
provide bankruptcy schedules to debtors as any other forms; the
only
legitimate functions a nonlawyer can perform is to type and file
forms
obtained and completed by debtors." 262 B.R. at 97 n.2; but see In re
Herren,
138 B.R. 989, 994 (Bankr. D. Wyo. 1992) ("Providing copies of the
Official Forms
necessary to filing a petition for bankruptcy relief is a
legitimate and
necessary service to the public.").
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- - End Footnotes- - - - - - - - - - - - - - [*19]
Interpreting legal
terms also constitutes the unauthorized practice of law, a
point which will
prove relevant to the legality of the use of "questionnaires"
utilizing
simplified language to assist debtors in the filing of their
petitions. In
Taub v. Weber, 366 F.3d 966 (9th Cir. 2004), n11 for example, the
court held
that a bankruptcy petition preparer engaged in the unauthorized
practice of
law when he interpreted the terms "market value" and "secured claim
or
exemption" for a debtor in connection with the completion of
bankruptcy
forms. Id. at 971; see also In re Agyekum, 225 B.R. 695, 702 (9th
Cir. B.A.P.
1998) (holding that bankruptcy petition preparer use of a
bankruptcy handbook
which provided information about the bankruptcy process,
information on what to
consider when filing bankruptcy and a glossary of
bankruptcy terms constituted
the unauthorized practice of law).
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n11
Although Taub applied Oregon law, Oregon's definition of what constitutes
he
practice of law is substantially similar to California's: "[T]he practice
of
law includes the drafting or selection of documents and the giving of
advice in
regard thereto any time an informed or trained discretion must be
exercised in
the selection or drafting of a document [ILLEGIBLE TEXT] the
needs of the
persons being served . . . [A]ny exercise of an intelligent
choice, or an
informed discretion in advising another of his legal rights
and duties, will
bring the activity within the practice of the profession . .
. ." Taub, 366 F.3d
at 969 (citation omitted).
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End Footnotes- - - - - - - - - - - - - - [*20]
Similarly, "[s]oliciting
information from a debtor [by use of a
questionnaire] which is then typed
into schedules constitutes the unauthorized
practice of law." Agyekum, 225
B.R. at 702; see also In re McCarthy, 149 B.R.
162, 166 (Bankr. S.D. Cal.
1992); In re Anderson, 79 B.R. 482, 485 (Bankr. S.D.
Cal. 1987) (paralegal
interviewed debtor, solicited information, prepared
bankruptcy schedules,
advised the debtor of her legal rights vis-a-vis secured
collateral and the
differences between a Chapter 13 and a Chapter 7 filing,
advised the debtor
on the necessity to file amendments to her schedules to
reflect a tax refund,
and selected her exemptions). More to the point,
[p]lugging in solicited
information from questionnaires and personal interviews
to a pre-packaged
bankruptcy software program constitutes the unauthorized
practice of aw.
Moreover, advising of available exemptions from which to choose,
or actually
choosing an exemption for the debtor with no explanation, requires
the
exercise of legal judgment beyond the capacity and knowledge of lay
persons.
" In re Kaitangian, 218 B.R. 102, 110 (Bankr. S.D. Cal. 1998).
[*21] The law is
clear: "[T]he services of bankruptcy petition preparers are
strictly limited to
typing bankruptcy forms." Id. at 113. n12
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n12 The fact
that CCSA and Mr. Bohl would also be "legal document assistants"
under Cal.
Bus. & Profs. Code § 6400(c) does not change the fact that they are
still
prohibited from engaging in the practice of law without a license.
Legal
document assistants are limited to completing legal documents in a
ministerial
manner, providing general published factual information, making
published legal
documents available and filing and serving legal documents.
Id. § 6400(d).
Furthermore, section 6402 explicitly does not sanction,
authorize or encourage
the practice of law by legal document assistants. Id.
§ 6402.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - -
-
2. Whether New BAPCPA Provisions Allow Limited Practice of
Law
Mr Bohl suggested that he was simply attempting to comply with
certain
revisions of the bankruptcy law under BAPCPA and seemed to think that
recent
changes [*22] to the Code may have altered the general prohibition
against the
unauthorized practice of law by bankruptcy petition preparers. As
discussed
below, I hold that the BAPCPA has not changed the general
prohibition against
the unauthorized practice of law. If anything, the new
Act has made it even more
clear that bankruptcy petition preparers are not
allowed to engage in the
unauthorized practice of law.
The new Act
explicitly does not preempt state law on the unauthorized
practice of law. 11
U.S.C. §§ 110, 526, 527 and 528 all explicitly do not
preempt state law on
this subject. n13 Instead, these sections generally
incorporate such
law.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
-
n13 11 U.S.C. § 110(k) provides that "[n]othing in [section 110] shall
be
construed to permit activities that are otherwise prohibited by law,
including
rules and laws that prohibit the unauthorized practice of law."
Similarly, 11
U.S.C. § 526(d) states:
(d) No provision of [section
526], section 527, or section 528 shall --
(1) annul, alter, affect,
or exempt any person subject to such
sections from complying with any
law of any State except to the extent
that such law is inconsistent with
those sections, and then only to
the extent of the inconsistency;
or
(2) be deemed to limit or curtail the authority or ability
--
(A) of a State or subdivision or instrumentality thereof,
to
determine and enforce qualifications for the practice of law under
the
laws of that State; or
(B) of a Federal court to
determine and enforce the qualifications for
the practice of law before
that court.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - -
- - [*23]
On the other hand, had the new Act imposed any duties on
bankruptcy petition
preparers that constitute the practice of law, these
duties would be lawfully
permitted. Contrary state law would be preempted.
However, "[t]he centerpiece of
any preemption analysis is congressional
purpose . . . . '[A]ny understanding of
the scope of a pre-emption statute
must rest primarily on 'a fair understanding
of congressional purpose.'" PG
& E Co. v. California, 350 F.3d 932, 943 (9th
Cir.2003) (holding that
presumption against preemption of generally applicable
state law applies in
bankruptcy area). "To displace traditional state regulation
. . ., the
federal statutory purpose must be 'clear and manifest.'" BFP v.
Resolution
Trust Corp., 511 U.S. 531, 544 (1994).
The new Act certainly has imposed
more requirements on bankruptcy petition
preparers, but none of these clearly
or manifestly require bankruptcy petition
preparers to engage in the practice
of law. With respect to 11 U.S.C. § 110,
despite significant statutory
changes, such as the new notice requirement under
subsection (b)(2),
"[n]othing in th[at] section shall be construed [*24] to
permit activities
that are otherwise prohibited by law, including rules and laws
that prohibit
the unauthorized practice of aw." 11 U.S.C. § 110(k). The new
notice
requirement in subsection (b)(2) reiterates this point, in that it
is
required to state "in simple language that the bankruptcy petition
preparer is
not an attorney and may not practice law or give legal advice."
11 U.S.C. §
110(b)(2)(i). The notice may give examples of advice the
bankruptcy petition
preparer may not give, and must be signed by the Debtor.
Id. § 110(b)(2)(ii) &
(iii). n14
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - -
n14 Providing debtors with forms
that are required to be transmitted under 11
U.S.C. §§ 110 and 527 does not
constitute the practice of law.
- - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - -
Aside from 11 U.S.C. § 110, the only area of the
Code that has changed the
duties of bankruptcy petition preparers is the
"debt relief agency" provisions.
See 11 U.S.C. §§ 526 [*25] - 528. These
provisions apply to bankruptcy petition
preparers because, under 11 U.S.C. §
101(12A), they are expressly defined as
debt relief agencies.
Having
reviewed these statutory provisions, the only section that comes
anywhere
close to modifying the general prohibition against the unauthorized
practice
of law by bankruptcy petition preparers is 11 U.S.C. § 526(a)(3)(B).
n15
Under this section, "[a] debt relief agency shall not . . . misrepresent
to
any assisted person or prospective assisted person, directly or
indirectly,
affirmatively or by material omission, with respect to . . . the
benefits and
risks that may result if such person becomes a debtor in a case
under this
title." 11 U.S.C. § 526(a)(3)(B). n16 It could be argued that this
section may
provide that, in certain extreme circumstances, a bankruptcy
petition preparer
may have a duty to explain the benefits and risks of filing
bankruptcy, meaning,
to this limited extent, bankruptcy petition preparers
would be permitted to
practice law. As discussed below, however, Congress has
indicated through other
sections in the new [*26] Act that this cannot be
what section 526(a)(3)(B)
means.
- - - - - - - - - - - - - - Footnotes
- - - - - - - - - - - - - - -
n15 11 U.S.C.A. § 527(c) also imposes
certain legal duties on "debt relief
agencies," such as to provide
information on "how to provide all the information
the assisted person is
required to provide under this title pursuant to section
521." However, this
duty extends only "to the extent permitted by nonbankruptcy
law." Id. Thus,
section 527(c) does not impose any such duties on bankruptcy
petition
preparers.
n16 "Assisted persons" are "any person[s] whose debts consist
primarily of
consumer debts and the value of whose nonexempt property is less
than $ 150,000.
" 11 U.S.C. § 101(3).
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - -
Applying the rules of preemption,
there is neither a manifest nor clear
intent to preempt state law prohibiting
the unauthorized practice of law. If
anything, the BAPCPA has made it much
clearer that bankruptcy petition preparers
without exception are prohibited
from practicing law. 11 U.S.C. § 110(e)(2)
[*27] provides, in part, that
"[a] bankruptcy petition preparer may not offer a
potential bankruptcy debtor
any legal advice." 11 U.S.C. § 110(b)(2) requires
bankruptcy petition
preparers to provide debtors with a notice stating "in
simple language that a
bankruptcy petition preparer is not an attorney and may
not practice law or
give legal advice." Bankruptcy petition preparers are
prohibited from using
"the word 'legal' or any similar term in any
advertisements, or to advertise
under any category that includes the word 'legal
' or any similar term." 11
U.S.C. § 110(f). Finally, 11 U.S.C. § 527, one of the
"debt relief agency"
provisions similarly provides that bankruptcy petition
preparers must provide
debtors with an additional statement that says: "You are
generally permitted
to represent yourself in litigation in bankruptcy court, but
only attorneys,
not bankruptcy petition preparers, can give you legal advice."
11 U.S.C. §
527(b).
Given these other statutory provisions, it is clear that whatever
11 U.S.C. §
526(a)(3)(B) means, it is not a license to engage [*28] in the
practice of law.
Instead, it appears that Congress was focused on the word
"misrepresent."
However, for there to be a misrepresentation, there must
first be a
representation. See In re Rubin, 875 F.2d 755, 759 (9th Cir. 1989)
(describing
the elements of fraudulent misrepresentation under 11 U.S.C. §
523(a)(2)(A)).
Yet, under applicable law, there cannot be a representation.
If the bankruptcy
petition preparer remains the "mute typist" that law
requires him or her to be,
then there is no risk of misrepresentation. By
contrast, it is only when
bankruptcy petition preparers do give legal advice
and make legal
representations that the risk of direct or indirect
misrepresentation arises.
n17 Thus, I conclude that no section of the BAPCPA
permits bankruptcy petition
preparers to engage in the practice of
law.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
-
n17 There is an excellent example of such a misrepresentation on
CCSA's
website in the FAQ section. Question: "Are there any negative
consequences to
filing bankruptcy?" Answer. "Despite the many rumors
propagated for years by
creditors, debt collectors, debt counseling
organizations and the like for their
own self-interest, there are virtually
no negative consequences to filing
bankruptcy. . . . "
- - - - - - - -
- - - - End Footnotes- - - - - - - - - - - - - - [*29]
3. CCSA and Mr.
Bohl Improperly Gave Legal Advice
a. Filing Fee Advice
CCSA
engaged in the unauthorized practice of law in giving the Debtor filing
fee
advice in its November 22, 2005 e-mail to the Debtor. This e-mail
included
certain "emergency bankruptcy documents," including an Application
to Pay Filing
Fee in installments (Official Form 3A). This e-mail reads, in
pertinent part, as
follows:
Include a POSTAL MONEY ORDER (only
U.S. Postal Money Orders are
accepted) or CASHIER'S CHECK in the amount
of $ 274 payable to "Clerk,
U.S. Bankruptcy Court" for the court filing
fee. Most bankruptcy
courts will allow you to pay the filing fee in
monthly installments,
if necessary. Please contact your local bankruptcy
court at the above
telephone number for information about its local
policy regarding
payment of the filing fee. A fillable Application to
Pay Filing Fee in
Installments is attached. Complete the form after
speaking to your
local bankruptcy court clerk as to how the installment
fee needs to be
paid.
This is clearly legal advice and, at least
in this district, it would be
incomplete advice, misleading, and potentially
harmful. Under LBR 1006-1, an
individual [*30] may apply for permission to
pay the filing fee in
installments, but only if he or she is "unable to pay
the full filing fee." In
addition to a written application, a local rule
requires that the application be
accompanied by "a declaration under penalty
of perjury stating whether the
debtor received assistance in preparing the
petition and whether the debtor paid
anyone for such assistance." It is
extremely rare for an installment fee
application to be approved in this
district where payment has previously been
made to a bankruptcy petition
preparer or an attorney. See FRBP 1006(b). In this
case, no such declaration
was provided to the Debtor or filed with the Court.
The fact that CCSA
couches its language in admonitions to call the clerk does
not change the
fact that the above paragraph constitutes legal advice.
In addition, the
Voluntary Petition prepared by CCSA and Mr. Bohl indicated
that the filing
fee was to be paid in installments. To the extent that CCSA and
Mr. Bohl made
this selection for the Debtor without his specific instruction to
do so, this
is likewise, engaging in the unauthorized practice of law. This
action goes
far beyond [*31] mere typing and has legal implications. Here,
Bernales
believed he had an urgent, time-sensitive need to file bankruptcy.
He
received these e-mail instructions and completed forms from CCSA and Mr.
Bohl
and relied on them as sufficient to allow him to file his fee in
installments.
Had the Debtor only been prepared to pay an installment on the
date he filed his
petition, his petition might have been rejected and,
because of this delay, the
Debtor could have suffered irremediable
consequences. Fortuitously, this in fact
did not happen here. After he was
rejected at the window, he promptly modified
his petition and paid his filing
fee in full. n18
- - - - - - - - - - - - - - Footnotes - - - - - - - - -
- - - - - -
n18 The court notes that actual knowledge that a debtor is
able to pay the
filing fee in full when completing these forms, combined with
encouragement to
apply to pay in installments and provision of the requisite
forms, is
potentially the subornation of perjury. [ILLEGIBLE TEXT]n the
Application to Pay
Filing Fee in Installments, the Debtor is required to
declare that I am unable
to pay the filing fee except in
installments."
- - - - - - - - - - - - End Footnotes- - - - - - - - - - -
- - - [*32]
b. "Facesheet Filing"
In the same e-mail as the filing
fee advice, CCSA further stated as follows:
The attached documents
are the only documents required to effectuate
your bankruptcy filing.
Your bankruptcy will be effective immediately
upon filing. By law,
additional bankruptcy documents including but not
limited to a Summary
of Schedules, Schedules A-J, a Statement of
Financial Affairs, Statement
of Intention, etc. (approximately 30-35
pages) must be filed within 15
days of your initial bankruptcy filing.
Please let us know (preferably
via e-mail) once you have filed the
attached documents with your local
bankruptcy court so we'll know when
your additional documents will be
due. The court clerk will provide
you with a deficiency notice informing
you as to the 15-day deadline
for submitting additional
documents.
Advising the Debtor which documents he needs to file to
effectuate his
bankruptcy is also the unauthorized practice of law. By
providing Bernales with
solely these limited documents, which did not include
at least one required
declaration, CCSA and Mr. Bohl set Bernales up for
failure.
Providing the Debtor only with "emergency bankruptcy documents"
brings [*33]
up several important issues, the first of which is a "facesheet
filing."
Encouraging a debtor to file a "facesheet filing" is engaging in the
practice of
law. How to do such an abbreviated initial filing is not obvious
from the Court
's website. Instead, it involves "an intelligent choice, or an
informed
discretion in advising another of his legal rights and duties."
Taub, 366 F.3d
at 969.
"Facesheet filing," in particular, carries
potentially serious consequences,
particularly post-BACPA. Whereas pre-BACPA,
the Debtor would likely only be put
to he additional risk and expense of
having to file a second bankruptcy if he
did not file the remaining paperwork
in time and his case were dismissed, the
situation changes drastically
post-BACPA. Under 11 U.S.C. § 362(c)(3), in
general, if an individual debtor
had a case that was dismissed within the
previous year, the automatic stay
automatically terminates after only thirty
days. The debtor may move to
extend the automatic stay, but must show good
faith. However, statutorily, "a
case is presumptively not filed in good faith .
. . as to all creditors, if .
. . a previous case under any of chapters [*34]
7, 11, and 13 in which the
individual was a debtor was dismissed within such
1-year period, after the
debtor failed to file . . . documents as required by
this title or the court
without substantial excuse . . . ." 11 U.S.C. §
362(c)(3)(C)(i)(ll)(aa). Mere
inadvertence or negligence, in general, are not a
substantial excuse. Id.
Moreover, the debtor must overcome this presumption by
clear and convincing
evidence.
Under normal circumstances, Debtor's case should have and would
have been
dismissed much earlier than it was. The only reason it was not
dismissed earlier
was because the clerk's office was backlogged with filings
from the "hurricane"
of filings that were filed the week preceding October
17, 2005, immediately
before the major provisions of the BAPCPA went into
effect. If Debtor should
file a second bankruptcy, his automatic stay will
only last thirty days absent a
court order extending it. Debtor would be hard
pressed to extend the automatic
stay by showing his good faith by clear and
convincing evidence, since there
would be a statutory presumption against
him. Moreover, should this second case
also be dismissed, Debtor will have no
automatic [*35] stay at all. See 11
U.S.C. § 362(c)(4)(A)(i). Dismissal now
has widespread implications under the
Code. This factor highlights why the
election to engage in a "facesheet filing"
is a significant legal decision,
and is not a decision that should be
encouraged, let alone made, by
bankruptcy petition preparers.
A second reason why a "facesheet filing"
was especially inappropriate in this
case was that by engaging in a
"facesheet filing," the Debtor, CCSA and Mr. Bohl
put off completing Form
B22A, the means test calculation form, until some time
later. By filing a
"facesheet filing," the Debtor inappropriately and
prematurely elected to
pursue Chapter 7 relief instead of Chapter 13 relief.
Because he filed under
Chapter 7, however, without due consideration to his
monthly income level and
expenses, the presumption of abuse arose under 11
U.S.C. § 707(b)(2)(A)(i).
While, under 11 U.S.C. § 362(c)(3), dismissal under
section 707(b) would not
shorten the automatic stay in a subsequent case like a
dismissal for failure
to file schedules would, dismissal under this section
would cause the Debtor
to incur numerous [*36] unnecessary expenses. In
addition to any expenses
incurred in filing and maintaining the Chapter 7 case,
the Debtor would have
to pay, at minimum, filing fees to convert his case to
Chapter 13 or to file
a new Chapter 13 case. Had all of the documents been
prepared at the same
time and had CCSA and Mr. Bohl not felt competent enough to
make an
intelligent decision to file a facesheet filing," this unfortunate
situation
might never have arisen. However, because CCSA and Mr. Bohl decided to
play
lawyer, it did.
To make matters far worse, and to take the discussion
beyond the purely legal
question of whether CCSA and Mr. Bohl engaged in the
unauthorized practice of
law, CCSA and Mr. Bohl completely bungled this
matter. The control and timing of
turning over the documents to the Debtor
for filing was completely in their
hands. The Debtor daily begged and pleaded
in his e-mails for CCSA and Mr. Bohl
to send him his completed documents in
time to meet the deadline, and they
failed him time and again. Worse, they
led the Debtor to believe, to his
detriment, that the documents would be
ready in no time and there would be no
problem. CCSA's website prominently
stated: 'Consumer Credit Services [*37] of
America can prepare your Chapter
7 or 13 Official Bankruptcy Forms in as little
as one day . . . ." Moreover,
CCSA made specific representations to the Debtor
by e-mail: "We know what is
missing and will get them to you a day or 2 prior to
the deadline." In
particular, on the date of his deadline, the Debtor e-mailed
Mr. Bohl again
as to the status of the documents. He got an out-of-office reply:
"Your case
coordinator, Greg Bohl, has been out on medical leave. A
Bankruptcy
Questionnaire is attached. Please complete the Questionnaire and
return it to us
asap via fax. . . . We can complete your bankruptcy documents
and e-mail them to
you within an hour or so after we receive the completed
Questionnaire from you."
In Court, Mr. Bohl testified that the Questionnaire
is a simplified version of
the questions found in the Schedules and Statement
of Financial Affairs, and
that CCSA uses this Questionnaire to complete their
debtors' paperwork. This
suggests that despite all assurances they were
working on Debtor's paperwork,
CCSA and Mr. Bohl put off doing much, if any,
of this work until the eleventh
hour. This conclusion is bolstered by the
fact that the papers, which by their
own statements [*38] only take an hour
to complete, were not ready until
December 13, 2005 and were not filed until
December 15, 2005, although they were
due on December 8. CCSA and Mr. Bohl
left the Debtor in a lurch. Mr. Bohl, his
primary contact person, was out of
the office, but no notice was provided to
Bernales of this until he received
the e-mail, and apparently there was no
backup person to assist in filing the
remaining papers. Put simply, CCSA and Mr.
Bohl show no signs that they
cared, which is especially troubling considering
how prejudiced the Debtor
would soon be by a dismissal. Had an attorney
conducted himself with the same
ineptitude, he or she could have been sanctioned
and the debtor would have
had recourse to a malpractice policy for any harm or
ineptitude
caused.
c. Motion for Extension of Time
For the sake of
completeness, during these delays, CCSA and Mr. Bohl actually
did do
something to help the Debtor. They encouraged him to file a motion to
extend
the deadline to file the remaining paperwork. While it appears that
neither
CCSA nor Mr. Bohl actually drafted the motion itself, their
mere
encouragement of this is also the unauthorized practice of law, and has
legal
consequences. [*39] Their wholehearted faith in its approval
was
inappropriate. The fact that it was filed seems to have fueled
their
lackadaisical attitude toward timeliness. The Court very well could
have denied
the motion to extend the deadline, but it did not.
Notwithstanding the fact that
this advice actually helped the Debtor, it was
unlawful for CCSA and Mr. Bohl to
give it. Rather, hey should have simply
provided the Debtor with all of the
necessary documents at once. They should
have never meddled with "emergency
bankruptcy documents" in the first place.
This way they could have properly
limited their role to typing and would
never have felt the need to engage in the
unauthorized practice of law to dig
the Debtor out of a hole that they
themselves where a primary force in
creating.
d. Legal Interpretation of the Deadline
Next, CCSA and
Mr. Bohl engaged in the unauthorized practice of law in
advising the Debtor
what constitutes "15 days" for the purpose of meeting his
deadline. Anxious
meet his deadline, the Debtor asked CCSA and Mr. Bohl whether
the 15 day
deadline means "15 business days or 15 days total including weekends.
"
Rather than simply advise the Debtor to refer to the case commencement
[*40]
deficiency notice, CCSA and Mr. Bohl gave the Debtor their
interpretation of
FRBP 9006. They wrote: "15 calendar days, including
weekends. Exclude the day
your initial documents were filed [ILLEGIBLE TEXT]f
the last day falls on a
weekend or holiday, the due date is extended to the
next court business day.
Courts usually allow 1 or 2 extra days." For the
most part, CCSA and Mr. Bohl
happen to be correct. However, had they been
wrong and had the Debtor relied on
their interpretation, the Debtor could
have been prejudiced, and without the
same remedies he might have against an
attorney.
e. Advice Regarding the Debtor's Duties
CCSA also, in
one of their e-mails, provided the Debtor with a list of what
the Debtor is
required to do under 11 U.S.C. § 521. In this short list, they
advised the
Debtor to (1) file evidence of income with the Court within 15 days,
and (2)
provide the Chapter 7 Trustee with a copy of the Debtor's most recent
federal
income tax return at east seven days before the meeting of creditors.
This
list is legal advice. Although the above are, indeed, duties under 11
U.S.C.
§ 521 [*41] , this list is incomplete. Notably, CCSA and Mr. Bohl
never
mentioned that the Debtor is required to file the section 342(b)
certificate.
This is a certificate Congress now requires demonstrating that
the debtor was
aware of which bankruptcy chapters were available and the
services available
from credit counseling agencies. See 11 U.S.C. §§ 342(b),
521(a)(1)(B)(iii). In
fact, it appears that they never provided the Debtor
with the required section
342(b) notice in the first place. In addition, CCSA
and Mr. Bohl did not advise
the Debtor to file a statement of the amount of
monthly net income or a
statement disclosing any reasonably anticipated
increase in income or
expenditures. See 11 U.S.C. § 521(a)(1)(B)(v) and (vi).
Again, had the Debtor
relied on this as a complete list, he would have done
so at his detriment.
Rather than take the advice of a Florida-based
bankruptcy petition preparer, who
is not entitled to give legal advice and is
unfamiliar with this district, the
Debtor should have been referred to the
list of forms in the Chapter 7 Package
on the Court's website.
f.
Means Test Advice
On [*42] December 5, 2005, the Debtor sent an e-mail
to Mr. Bohl, stating:
"[Y]ou were suppose to let me know if we needed to
switch to a Chapter 13 if I
didn't qualify for the Means Test for the Chapter
7, any luck on this?" He
received a reply stating: "We will review your file
regarding the means testing
and get back to you when we send your additional
documents. We should be
e-mailing them to you by tomorrow morning." On
November 13, 2005, the date the
documents were finally complete and sent to
the Debtor for filing, CCSA sent the
Debtor its assessment of the means
test:
According to the monthly income and expenses you provided, and
after
subtracting all allowable deductions as alowed [sic] under
the
bankruptcy laws, you and your wife have over $ 900 left over
each
month. You definitely don't qualify for Chapter 7. If you convert
to
Chapter 13, your monthly payment will be over $ 900 per month.
Your
combined annual gross income is over $ 114,000 per year. Your best
bet
is for us to contact the company that served the garnishment and
try
to work out a monthly payment plan.
After being questioned by
the debtor as to why the numbers on the means test
form (Form 22A) [*43]
were different from those on Schedule I, CCSA sent the
following
reply:
Schedule J lists your actual claimed expenses. However, the
new "means
testing" provisions of the new bankruptcy laws disregards
[sic] your
actual claimed expenses and only allow standard deductions
for various
categories of living expenses, regardless of what your
actual expenses
are. [P] For example, you might claim $ 250 a month on
home
improvements/repairs on Schedule J, but the new bankruptcy laws
only
allow you a certain amount ($ 1,400 monthly for example for a
family
of 3) for food, clothing, housekeeping items and miscellaneous
living
expenses. [P ] You might claim $ 200 a month for
entertainment
expenses, but the new means testing does not allow that.
You might
claim $ 600 monthly for a private school for your child, but
the means
testing provisions do not allow for a private school. [P ]
Form B22A
lists your combined gross monthly income and then subtracts
standard
allowable expenses in certain categories. That's why it is
different
from your actual expenses as claimed on Schedule J. Since
your
combined gross annual income is well over the median family income
for
your state, the [*44] new bankruptcy laws disregard your
actual
expenses as claimed on Schedule J and use the authorized
deductions as
reflected on Form B22A. According to the new means testing
laws, you
have over $ 900 left over each month after legally
allowable
deductions from gross income.
Explaining the meaning,
rationale and workings of a bankruptcy statute, rule
or form constitutes the
practice of law. This is particularly so with respect to
untested,
uninterpreted, novel and unfamiliar statutes, rules and forms.
The
application of the means test under 11 U.S.C. § 707(b)(2) is one of the
most
discussed new provisions of the BAPCPA. Most attorneys do not agree on
how this
section should be applied in practice, and little in the way of
judicial
interpretation has been issued so far. Thus, any attorney providing
advice on
whether a debtor is subject to the Chapter 7 means test would do so
with
reservations at this point. That a non-attorney not under the
supervision of any
licensed attorney would consider venturing into this area
in any way is
extremely disturbing. It also, following a consistent pattern,
constitutes the
unauthorized practice of law.
g. Inclusion of All
[*45] Creditors
The e-mail in which CCSA attached the prepared copy of
the petition for the
Debtor also included the following language: "After
filing, you may add or
delete creditors, if necessary, or make any other
changes or amendments that you
wish. You will have plenty of time to do so."
This is an extraordinary piece of
legal advice. Adding or deleting creditors
can raise significant issues in a
case. Under FRBP 2002(a), creditors in a
chapter 7 case are entitled to twenty
days' notice of, inter alia, (1) the
meeting of creditors, (2) a proposed use,
sale or lease of property of the
estate, (3) a hearing on approval of compromise
or settlement, (4) the
hearing on the dismissal of the case, (5) certain
requests for compensation
or reimbursement, and (6) the time for filing proofs
of claims. Lightly
adding and deleting creditors could pose major problems to
adequate notice of
such items.
Deleting creditors, or adding them too late in the day, is
extremely likely
to prejudice creditors. They might have no notice of the
bankruptcy. They could
miss their deadline to file their proof of claim. They
might not be aware of a
critical hearing. And, most [*46] significantly for
certain creditors, they
might also miss the deadline for filing a
nondischargeability complaint. Under
FRBP 4007, nondischargeability
complaints may only be filed up to the sixtieth
day after the first day set
for the meeting of creditors. If the creditors do
not receive the appropriate
notices, they will not meet the deadline. Advising
the Debtor, with the words
that he had "plenty of time" to add or delete
creditors, not to be concerned
about accuracy or timeliness was reckless at
best. These words could have
lured the Debtor into not making a timely search
for all creditors and indeed
not adding them as appropriate. This would have the
effect of possibly
prejudicing both them and the Debtor later. n19
- - - - - - - - - - - - -
- Footnotes - - - - - - - - - - - - - - -
n19 In the words of Judge Alan
Jaroslovsky, "[t]he actions of [CCSA and Mr.
Bohl] constitute a classic
example of how bumbling non-lawyers can cause serious
problems for their
'clients' even in very simple bankruptcy cases." In re Powell
, 266 B.R. 450,
451 (Bankr. N.D. Cal. 2001).
- - - - - - - - - - - - End Footnotes- - - -
- - - - - - - - - - [*47]
h. Questionnaire
The Questionnaire
itself requires little discussion. Mr. Bohl explained that
CCSA uses the
Questionnaire to simplify the language of the required forms to
assist CCSA
translate the answers into the appropriate Schedules and the
Statement of
Financial Affairs. Under applicable case law, this is the
unauthorized
practice of law. "Soliciting information from a debtor [by use of
a
questionnaire] which is then typed into schedules constitutes the
unauthorized
practice of law." Agyekum, 225 B.R. at 702. Notably, the
creation and use of the
Questionnaire requires interpretation and
understanding of the meaning of the
questions in the Schedules and Statement
of Financial Affairs. Bankruptcy
petition preparers are prohibited from
giving explanations or providing
definitions of terms. Taub, 366 F.3d at
971.
i. Selection of Exemptions
The Debtor testified in Court that
he did not select his exemptions. Instead,
Mr. Bohl stated that he and CCSA
did. They apparently have a list of applicable
state and federal exemptions
and enter the one that seems to fit the best and
yields the greatest amount.
This, like the Questionnaire, requires [*48] little
discussion, because it
also is clearly the practice of law. The choice of
exemptions involves an
analysis of the debtor's assets and how they can be
protected under various
exemption choices. "[A]dvising of available exemptions
from which to choose,
or actually choosing an exemption for the debtor with no
explanation,
requires the exercise of legal judgment beyond the capacity and
knowledge of
lay persons." Kaitangian, 218 B.R. at 110; see also In re Pillot,
286 B.R.
157 (Bankr. C.D. Cal. 2002).
j. Website
Lastly, the Court turns to
CCSA's website. Because the Debtor primarily
relied on the information
provided on the CCSA website and because
internet-based bankruptcy petition
preparers seem to be proliferating, it is
worth noting in some detail the
many issues raised by the text of the CCSA
website. While Mr. Bohl revised
and promised to revise further the website text
during these proceedings, at
the time Bernales accessed the site, it was chock
full of both legal advice
and inaccurate information in its Frequently Asked
Questions section.
n20
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - -
-
n20 Although this fact has no bearing on the Court's decision in this
case,
this Court takes note of the fact that Mr. Bohl and CCSA have made
little to no
revisions to their website despite the helpful recommendations
by both the Court
and the U.S. Trustee.
- - - - - - - - - - - - End
Footnotes- - - - - - - - - - - - - - [*49]
For example, CCSA gives advice
generically on whether certain debts are
nondischargeable. "Can my creditors
object to my bankruptcy discharge?"
"Creditors rarely have grounds to object
to your bankruptcy discharge and almost
never do unless a particular debt was
fraudulently incurred." The website
discourages debtors from hiring
attorneys, irrespective to the specific facts of
their case. "Do I need an
attorney to file bankruptcy?" "No. After you file
bankruptcy, you will simply
need to meet with a bankruptcy trustee. A typical
trustee meeting lasts about
1-3 minutes and you do not need to be represented by
an attorney. Individuals
without attorneys filed an estimated 510,000 successful
bankruptcies in the
United States last year." The website even goes so far as to
offer procedural
advice. "If I have been served with a summons in a civil case,
am I required
to appear in court?" "No. A court summons is an official
notification in a
civil case that informs a defendant that a lawsuit has been
filed against him
or her. A defendant is not required to attend any scheduled
court hearing or
pretrial conference unless the defendant has a legal defense
that he or she
wants to present to the [*50] court. If the defendant fails to
appear in
court, the case will be uncontested and a court judgment will be
entered
against him or her by default. However, if the defendant subsequently
files
bankruptcy, the court judgment will be null and void under section 524 of
the
United States Bankruptcy Code and the debt will be discharged." And the
list
goes on and on.
All of this generic advice can make a huge
difference in an individual case
and be extremely harmful. It far exceeds the
limited role of the typist. Worse,
there are no disclaimers recommending that
debtors get specific advice in their
individual cases. Quite the opposite --
the website discourages debtors from
going to attorneys, regardless of the
complexity of their individual situations.
Mr. Bohl's and CCSA's livelihood
appears to depend on this. The theme seems to
be to lure debtors into using
CCSA and then try to help them quickly slip
through the system before anybody
notices. This is practicing law in its worst
and sloppiest form.
This
Court wishes to make clear that it is explicitly not making a finding
that
CCSA or Mr. Bohl have engaged in the unauthorized practice of law by
merely
providing [*51] legal information to debtors through its website. Mr.
Bohl
asserted that the information on CCSA's website is analogous to
legal
literature, which he contends he is lawfully permitted to distribute
without a
license to practice law under the First Amendment. Putting aside
the question of
whether distribution of legal information constitutes the
unauthorized practice
of law, it is clear that much of the information on the
website is nonetheless
"fraudulent, unfair, or deceptive" under 11 U.S.C. §
110(i)(1). As section
110(i)(1) is a valid regulation of commercial speech,
any First Amendment
concerns raised by Mr. Bohl are not implicated here. As
discussed in depth in In
re Doser, 412 F.3d 1056, 1062-64 (9th Cir. 2005),
the regulation of bankruptcy
petition preparers under section 110(i) complies
with the four-part test used to
evaluate the protection due commercial speech
under Central Hudson Gas & Elec.
Corp. v. Pub. Serv. Comm'n, 447 U.S.
557, 562-63 (1980). This discussion does
not address accurate, non-misleading
information provided as general information
on a website.
B. Other
Violations of § 110 Involving Lack of [*52] Required Disclosures
1. 11
U.S.C. § 110(b)(2)(B)
Before preparing any document for filing or
accepting any fees from the
Debtor, CCSA and Mr. Bohl were required to
provide the Debtor with written
notice (Form B19B) informing him "in simple
language that a bankruptcy petition
preparer is not an attorney and may not
practice law or give legal advice." 11
U.S.C. § 110(b)(2)(B). The form "may
contain a description of examples of legal
advice that a bankruptcy petition
preparer is not authorized to give." Id.
Finally, this form "shall be signed
by the debtor, and under penalty of perjury,
by the bankruptcy petition
preparer" and be filed with the petition. Id.
Unfortunately, none of this,
apparently, was ever done. Had CCSA and Mr. Bohl
provided Form B19B to the
Debtor, one might imagine that the entire unauthorized
practice of law
problem might have been abated, since the notice would make the
Debtor aware
of the limitations on CCSA and Mr. Bohl. The failure to provide
this form is
significant and had potentially harmful consequences.
2. 11 U.S.C. §
110(h)(2)
Finally, 11 U.S.C. § 110(h)(2) [*53] requires that "[a]
declaration under
penalty of perjury by the bankruptcy petition preparer
shall be filed together
with the petition disclosing any fee received from or
on behalf of the debtor
within 12 months immediately prior to the filing of
the case, and any unpaid fee
charged to the debtor. . . ." This, however, was
not done. Bernales testified in
court that he paid CCSA $ 195, but this was
never disclosed. Thus, CCSA and Mr.
Bohl violated this section
also.
C. Sanctions
1. Fines or Damages to be Paid to the Debtor
and U.S. Trustee
"All fees charged by a bankruptcy petition preparer may
be forfeited in any
case in which the bankruptcy petition preparer fails to
comply with this
subsection or subsection (b), (c), (d), (e), (f), or (g)."
11 U.S.C. §
110(h)(3)(B). In light of CCSA's and Mr. Bohl's violations of 11
U.S.C. § 110(e)
and other provisions of section 110, this Court orders the
disgorgement of all
fees paid by the Debtor.
In addition, under 11
U.S.C. § 110(i), "[i]f a bankruptcy petition preparer
violates this section
or commits any act that the court finds to be fraudulent,
unfair, [*54] or
deceptive, . . after notice and a hearing, the court shall
order the
bankruptcy petition preparer to pay to the debtor (A) the debtor's
actual
damages; (B) the greater of (I) $ 2,000; or (ii) twice the amount paid by
the
debtor to the bankruptcy petition preparer for the preparer's services;
and
(C) reasonable attorneys' fees and costs in moving for damages under
this
subsection." 11 U.S.C. § 110(i)(1). In order for 11 U.S.C. § 10(h)(3)(B)
not to
be a superfluous provision, this Court understands 11 U.S.C. §
110(i)(1) to
provide supplementary damages to the Debtor in addition to fee
disgorgement
under subsection (h)(3)(B). Since Debtor has not proved actual
damages, this
Court will order an additional fine of $ 2,000 to be paid to
the Debtor.
Under 11 U.S.C. § 110(l)(1), "[a] bankruptcy petition
preparer who fails to
comply with any provision of subsection (b), (c), (d),
(e), (f), (g), or (h) may
be fined not more than $ 500 for each such
failure." Here, although CCSA's and
Mr. Bohl's failures have been extensive,
this Court believes an additional fine
of $ 2,000 against CCSA and [*55] Mr.
Bohl to be a sufficient sanction for
their conduct in this case. Pursuant to
11 U.S.C. § 110(l)(4), this amount shall
be paid to the U.S.
Trustee.
CCSA and Mr. Bohl shall be jointly and severally liable for all
of the above
fines and the fee disgorgement. CCSA and Mr. Bohl are ordered to
disgorge such
fees and pay such fines by no later than June 30, 2006. They
are further ordered
to provide proof of payment to the court within ten (10)
days after disgorging
their fees and paying the above fines. Failure to
comply with the these terms
may result in a finding that Mr. Bohl and CCSA
are in civil contempt, which
could result in assessment of fines and/or
penalties, sanctions, incarceration,
or further injunctive relief.
3.
Injunction
At the March 15, 2006 hearing, the United States Trustee filed
with the court
a request for judicial notice, which detailed prior related
misconduct by CCSA,
Mr. Bohl and others. n21 The first exhibit to the request
for judicial notice
was an order entered on September 17, 2004 in the U.S.
Bankruptcy Court of the
Southern District of Texas entitled Order for
Disgorgement, Payment of Fine and
Permanent Injunction Prohibiting [*56]
Greg Bohl, Garo G. Anadolian and
Consumer Credit Services of America from
acting as Bankruptcy Petition Preparers
in the State of Texas. The order
specifically found that CCSA, Mr. Bohl and
others had engaged in the
unauthorized practice of law and had violated 11
U.S.C. § 110. In light of
that, the order permanently enjoined them from acting
as bankruptcy petition
preparers in Texas, ordered a disgorgement of fees and
find them $ 200,
payable to the United States Trustee.
- - - - - - - - - - - - - -
Footnotes - - - - - - - - - - - - - - -
n21 At the March 15, 2006
hearing, before Mr. Bohl had been made aware that
he court had copies of
these orders, Mr. Bohl insinuated that he had never had
any trouble with any
other court before. After he was aware that the court knew
of these orders,
he openly misrepresented the substance of both of these orders
and the facts
on which they were based, notwithstanding the clarity and scope of
the above
orders. He stated these orders were because of a purported
prohibition
against legal how-to books and a $ 50 cap on what you can pay to
bankruptcy
petition preparers, neither of which are mentioned in he
orders.
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
[*57]
The request for judicial notice also included an order entered on
September
29, 2004 in the U.S. Bankruptcy Court of the Western District of
Texas. This
order specifically found that Mr. Bohl, CCSA and their agents and
employees had
been engaging in (1) advising persons concerning the filing of
a chapter 7
bankruptcy case, (2) advising persons or assisting persons in the
selection of
exemptions, (3) advising persons as to what property or debts
should be listed,
or soliciting information from them to reformulate onto the
petition, schedules
and statement of financial affairs, (4) advising persons
how to list debts as
secured, unsecured or priority, (5) defining terms for
persons such as executory
contracts, leases, exemptions and reaffirmation,
(6) directing persons to
portions of a statute or other materials for
explanations of exemptions, how to
schedule property and what will happen in
a bankruptcy case, (7) collecting fees
for acts and conduct which constitute
the practice of law, which Mr. Bohl and
CCSA were not licensed to practice,
(8) giving advice or rendering any service
requiring the use of legal skill
or knowledge. Based on the foregoing, the
court, inter alia, ordered [*58] a
disgorgement of fees, fined CCSA and Mr.
Bohl $ 500, and permanently enjoined
them "from rendering legal advice and
preparing or assisting in the
preparation of any document to be filed in any
bankruptcy case in any
bankruptcy court in the Western District of Texas,
whether over the internet,
via e-mail, computer software or any other electronic
transmission, or by any
other means."
Given the extensive violations in this and prior cases and,
an injunction is
also appropriate under 11 U.S.C. § 110(j). Under this
section, the Court may
"enjoin a bankruptcy petition preparer from engaging
in any conduct in violation
of this section or from further acting as a
bankruptcy petition preparer." Under
Demos v. Brown (In re Graves), 279 B.R.
266, 272 (9th Cir. B.A.P. 2002), this
Court may issue such an injunction sua
sponte. This Court may grant such an
injunction against CCSA and Mr. Bohl if
it finds that they have "engaged in
conduct in violation of this section or
of any provision of this title." 11
U.S.C. § 110(j)(2)(A)(i)(l). As shown
from this and prior cases, CCSA and Mr.
Bohl have continuously engaged in
extensive [*59] violations of 11 U.S.C. § 110
, and likely other sections of
the Code as well. n22 They have also shown a
total lack of remorse or
reflection, rather Mr. Bohl objects to "being treated
like a criminal." As
such, I find that CCSA's and Mr. Bohl's wrongful conduct
could not be halted
by mere injunction against improper conduct itself. Thus,
this Court
permanently enjoins CCSA and Mr. Bohl from further acting as
bankruptcy
petition preparers in the Central District of California, whether
over the
internet, via e-mail, computer software or any other electronic
transmission,
or by any other means.
- - - - - - - - - - - - - - Footnotes - - - - - -
- - - - - - - - -
n22 For the sake of completeness, I should note that,
in addition to their
violations of 11 U.S.C. § 110, there also appear to have
been violations of 11
U.S.C. §§ 527 and 528. It appears that disclosures were
not provided to the
Debtor, as required by 11 U.S.C. § 527(a) and (b). Also,
a review of CCSA's
website reveals that it failed to provide the required
"debt relief agency"
disclaimer, as required by 11 U.S.C. §
527(a)(4).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - -
- [*60]
IV. Conclusion
It is apparent that, at best, CCSA and Mr.
Bohl are confused about what the
practice of law is. While completing the
Official Bankruptcy Forms is an
extremely difficult task for an individual
with little or no knowledge of
bankruptcy laws, it is clear that CCSA and Mr.
Bohl, no matter what their
self-perceived knowledge of bankruptcy may be, are
not qualified under the law
to assist debtors by offering legal
advice.
CCSA and Mr. Bohl did even what the most preeminent bankruptcy
petitioner in
Florida would be forbidden to do: they practiced law in
California. If anything,
this case exemplifies why competent legal counsel is
important: they are
familiar with local rules and procedures, they are in
close proximity with the
client if he or she needs assistance, and they can
give debtors the legal advice
that they need. This is not so with bankruptcy
petition preparers like CCSA and
Mr. Bohl. Because of their unfamiliarity
with the law and procedure of this
district, their lack of proximity to the
Debtor and their inability to give
competent legal advice, their actions
ultimately had unfortunate consequences
for Bernales, whose case was
dismissed for failure [*61] to file all of the
required documents, including
any credit counseling certificate. Although the
Court sympathizes with
indigent debtors, this is no justification to turn a
blind eye to the
unauthorized practice of law by bankruptcy petition preparers,
especially as
they often tend to cause far more harm than good.
In conclusion, this
Court has determined the appropriate sanction to be (1)
disgorgement of fees,
(2) a fine of $ 2,000 to be paid to the Debtor, (3) a fine
of $ 2,000 to be
paid to the U.S. Trustee, and (4) a permanent injunction
prohibiting CCSA and
Mr. Bohl from further acting as bankruptcy petition
preparers in the Central
District of California, whether over the internet, via
e-mail, computer
software or any other electronic transmission, or by any
other
means.
IT IS SO ORDERED.
DATED: June 19,
2006
MAUREEN A. TIGHE
United States Bankruptcy JudgeDated:
June 19, 2006
