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ANALYSIS: Here’s Where Debt, Ethics, and Client Well-Being Clash

May 18, 2021, 9:00 AM

May is Mental Health Awareness Month, and I cannot think of a better time to explore the inescapable intersection between mental well-being and bankruptcy practice. Attorneys engaged in public-facing legal practices, such as debtors’ attorneys, are often tasked with the responsibility of remaining mindful of their clients’ mental and physical well-being in addition to providing the expected legal services. Consumer bankruptcy attorneys frequently meet with clients who are not only at their lowest points financially, but also simultaneously dealing with mental and emotional strains.

The Covid-19 pandemic has added to the mental distress of debtors. According to the National Alliance on Mental Illness, 1 in 5 Americans suffered from a mental illness prior to the pandemic—and that number has now increased to more than 2 in 5. As consumer bankruptcy filings begin to increase, attorneys in this space are bound to encounter more clients dealing with mental health struggles and should equip themselves with resources while caseloads are still manageable.

Current State of Consumer Bankruptcy

March 2021 saw a sharp increase in consumer Chapter 7 case filings of roughly 47%. And in April, for the first time this year, case filings exceeded 2020 numbers. March is typically the consumer bankruptcy “high season,” and April generally sees a noticeable, but not precipitous, decline in consumer Chapter 7 case filings. For now, the case count remains well below historic March peaks as a result of continued economic stimulus and eviction moratoria. We could, however, see a return to historical bankruptcy filing patterns with a steady uptick in bankruptcy filings as the year progresses.

A return to the familiar ebb and flow and overall increase in cases is likely a relief for practitioners, but with it will also come more of the familiar contact with financially and emotionally distressed debtors. Before the long-predicted wave of consumer bankruptcies arrives, consumer bankruptcy attorneys should give considerable thought not just to handling the influx of legal matters, but also to the inextricable emotional labor of serving a consumer client base.

Ethical Versus Moral Responsibility

When it comes to an attorney’s responsibility for the mental health of their clients, there is little guidance. Model Rule of Professional Conduct 1.14(b) provides that “[w]hen the lawyer reasonably believes that the client has diminished capacity, is at risk of substantial physical, financial or other harm unless action is taken and cannot adequately act in the client’s own interest, the lawyer may take reasonably necessary protective action…” While the Model Rule does not specifically reference mental illness, it sets a fairly high standard of substantial risk of harm before requiring lawyer intervention. Even when the clients meet that high standard, the Model Rule’s permissive “may” is far from a compulsory mandate for attorneys to act.

But while seeking mental health care for clients is not an explicit ethical requirement, with the societal push for more awareness of mental illness and mental well-being, it could be considered an implicit moral imperative.

A study conducted by the Substance Abuse and Mental Health Services Administration (SAMHSA) in 2016 revealed that adults living below the poverty line were more than twice as likely to suffer from serious mental illness than those living above the poverty line. And it should come as no surprise that Americans living below the poverty line also experience higher debt-to-income ratios and higher rates of payment delinquency—a financial state that could lead one to file bankruptcy. Additionally, the stigma of filing personal bankruptcy can itself be a source of mental and emotional distress.

What Can You Do?

Although the link between financial and mental distress is well documented, few bankruptcy courts provide any resources to address this unavoidable intersection between the bankruptcy bar and debtors suffering from mental illness or distress. The Bankruptcy Court for the Eastern District of North Carolina is a rare exception. It has a formal program connecting debtors to mental health resources and a routine practice of distributing informational pamphlets at § 341 meetings, the first meeting of creditors in a bankruptcy case.

I recently spoke with Rohan Pavuluri, co-founder and CEO of Upsolve, a nonprofit that empowers pro se Chapter 7 debtors to file their cases on their own. He said his users have tapped into a widely underutilized resource for debtors who need support during the bankruptcy process: other debtors. According to Pavuluri, approximately 1 in 10 American adults will file bankruptcy in their lifetime. Yet, the average American would have a hard time identifying a friend or family member who they know has filed for bankruptcy protection. “What is often viewed as a tool for corporations,” he said, “is viewed as a shortcoming for individuals, leaving consumer debtors feeling as if they’ve failed morally because of a narrative creditors have created for them.” Pavuluri said this informal take on group therapy could be replicated in private practice with consumer bankruptcy attorneys providing a safe space for willing clients to share their experiences.

If you do not live in a jurisdiction with readily available mental health resources and are not yet ready to create your own, there are other resources. Consider reaching out to your state’s lawyer assistance program or using the SAMHSA locator to find more information on local mental health resources for your clients. Also, maintaining a legal practice is stressful and working with debtors who are experiencing converging financial and mental health crises can be even more so, so it is of the utmost importance for you to attend to your own mental, emotional, and physical well-being. Stay Well!

Bloomberg Law subscribers can find related content on our Practical Guidance: Chapters 7, 9, 12 & 15 page, as well as our In Focus: Lawyer Well-Being page.

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