Bankruptcy And Unbundling: Oil and Water?, 0916 ALBJ, 77 The Alabama Lawyer 345 (2016)

Author:Professor Gary E. Sullivan and Jessica M. Zorn
Position:Vol. 77 5 Pg. 345
 
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BANKRUPTCY AND UNBUNDLING: Oil and Water?

Vol. 77 No. 5 Pg. 345

Alabama Bar Lawyer

September, 2016

Professor Gary E. Sullivan and Jessica M. Zorn

Unbundling legal Services-also known as "limited scope representation" or "discrete task representation" -allows an attorney to restrict her representation of a client to a specific task or issue instead of handling a client's matter comprehensively from beginning to end. Alabama Rule of Professional Conduct 1.2 has always allowed for limited scope representation, but the practice was sparsely used until specific procedures and forms became available in 2012.1 There are three general categories for discrete task representation: consultation and advice, limited representation in court and document preparation.2 Although unbundling in general litigation or simple transactional matters can create benefits that inure to both lawyer and client, unbundling and bankruptcy practice make strange bedfellows.

Generally, any attorney/client agreement involving an unbundled legal service must comply with the Rules of Professional Conduct and other applicable laws.3 In the context of bankruptcy, attorneys must also comply with the local rules of the particular bankruptcy court, the Federal Rules of Bankruptcy Procedure and the U.S. Bankruptcy Code. The difficulty of rectifying a limited scope representation agreement with bankruptcy rules and practice raises serious doubts as to the feasibility of unbundling services when representing debtors in bankruptcy courts in Alabama.

The Merits of Limited Scope Representation Generally

Limited scope representation increases access to the legal system for lower- and middle-income litigants who may not be able to afford an attorney offering comprehensive services.4

This argument is particularly persuasive in the bankruptcy context because attorneys’ fees have increased since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).5 Attorney fees after BAPCPA increased as much as 24 percent for Chapter 13 filers and–notably–48 percent for Chapter 7 debtors.6 BAPCPA’s enactment likely caused such cost increases because debtors must file more documents than before,7 the means test may require complicated calculations and the statute made attorneys responsible for errors in a debtor’s schedule. “Just as insurers charge higher premiums for greater risks and increased work, attorneys have charged higher fees to offset their new risks.”8 As filing bankruptcy becomes more expensive, fewer debtors can afford an attorney; limited scope representation has been proposed as a solution to this problem.

Unbundling provides certain benefits to attorneys as well. Discrete task representation ostensibly creates an opportunity for lawyers to expand their practice and market to lower-income clients.9 Lawyers may be able to provide assistance to clients they might otherwise not have the time or inclination to fully represent.10 These opportunities allow attorneys to collect additional fees where none existed (although, on the other hand, litigants who would have hired a full-service attorney may now choose to only hire an attorney for one or two tasks, thereby actually lowering the fees an attorney collects).

The Challenges of Unbundling Bankruptcy Services

As a general rule, unbundled service agreements must comply with all applicable ethical and procedural rules. In bankruptcy, however, attorneys may face difficulty rectifying a limited scope agreement with specific rules governing bankruptcy practice. The Bankruptcy Code does not mandate that an attorney fully represent a client, but most local rules nationally signal that an attorney should comprehensively represent her client.11 The Alabama Rules of Professional Conduct allow an attorney to limit the scope of representation if the agreement is reasonable under the circumstances.12 Lawyers should decline to offer unbundled legal services in the practice of bankruptcy because limited scope agreements raise serious concerns as to the attorney’s compliance with other rules, thereby rendering a limited scope representation unreasonable under the circumstances.

A. Informed Consent Concerns

In general, “[a] lawyer may limit the scope of representation if . . . the client gives informed consent.”13 In order for a client to give informed consent, the attorney must disclose a wide array of information.14 Bankruptcy attorneys face an ethical dilemma: the bankruptcy landscape is unusually complicated and technical. Can a client really give informed consent?

A debtor may wrongly assume that excluded services–like...

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