Can a lawyer file bankruptcy for a debtor while also representing the creditors, with a creditor paying the fees in exchange for the debtor reaffirming the debt?
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This page answers the general question as of 1973. Ezel answers yours: whether it's allowed on your facts, under the current rules of professional conduct in your state, with citations.
Plain-English summary
Informal Opinion 4/73 considered an attorney retained to file a federal bankruptcy petition for an individual, where a corporate creditor of that client would pay the legal and filing fees, the debtor-client would sign an additional note and agree to reaffirm that obligation, and the attorney had previously represented both the corporate creditor and the debtor. The committee concluded the proposed conduct would be improper under the Code of Professional Responsibility and imprudent, because the lawyer would not be giving his individual client the independent advice to which the client is entitled.
The committee relied on its own 1965 informal opinion holding that it is improper for an attorney representing a block of creditors to represent an individual debtor and file a bankruptcy petition for him while continuing to represent the creditors, because the inherent conflict between two classes of clients with totally adverse interests makes it impossible for the lawyer to maintain the undivided fidelity and confidential relationship required. It cited ABA Formal Opinion 40, which concludes that because the interests of a bankrupt and his creditors are adverse, it is professionally improper for an attorney to represent both in such a proceeding, and noted ABA Formal Opinion 103 in support.
The committee added that, on the facts, advising the client about reaffirming the corporate creditor's debt would raise a practical problem: the lawyer would have to advise both prospective clients that reaffirmation would in fact give a preference to one creditor over others, frustrating the intent of the bankruptcy law and subjecting the proceeding to likely dismissal. The lawyer would also be obligated to advise the individual client that he could reaffirm but need not, along with the consequences of reaffirmation.
Currency note
This opinion was issued in 1973, before Wisconsin's July 1, 2007 adoption of the revised Rules of Professional Conduct for Attorneys (the state's Ethics 2000 update), and it applies the former Code of Professional Responsibility's conflict principles. The current counterparts are SCR 20:1.7 / Model Rule 1.7 (conflicts of interest; current clients) and SCR 20:1.8 / Model Rule 1.8 (specific conflicts, including payment of a lawyer's fees by a third person under 1.8(f)). Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.
Common questions
Q: Can a lawyer represent both a bankrupt debtor and that debtor's creditors?
A: Under this opinion, no. The committee held that the interests of a bankrupt and his creditors are adverse, making joint representation an inherent conflict.
Q: What was the problem with a creditor paying the debtor's bankruptcy fees?
A: The committee explained that the linked reaffirmation of that creditor's debt would give the creditor an improper preference, frustrating the bankruptcy law and risking dismissal.
Q: What advice did the individual client need?
A: The committee said the debtor was entitled to independent advice that he could reaffirm the debt but need not, together with the consequences of doing so.
Background and rules framework
The opinion applied the former Code's conflict principles, a 1965 Wisconsin informal opinion, and ABA Formal Opinions 40 and 103. The current counterparts are SCR 20:1.7 / Model Rule 1.7 (conflicts) and SCR 20:1.8 / Model Rule 1.8 (third-party payment of fees and related specific conflicts).
Citations and references
Rules of Professional Conduct:
- Model Rule 1.7 / SCR 20:1.7 (conflicts of interest; current clients)
- Model Rule 1.8 / SCR 20:1.8 (specific conflicts; third-party payment of fees, MR 1.8(f))
Other opinions cited:
- ABA Formal Opinion 40: a lawyer may not represent both a bankrupt and his creditors
- ABA Formal Opinion 103: supporting the bankruptcy conflict rule
See also
- WI Ethics Op. E-69-3: Lawyer-Realtor Conflicts in Real Estate Closings
- WI Ethics Op. E-09-01: Third-Party Liens on Funds Held in Trust
Source
- Landing page: https://www.wisbar.org/formembers/ethics/pages/formal-opinions.aspx
- Original PDF: https://www.wisbar.org/formembers/ethics/Ethics%20Opinions/I-4-73.pdf
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