Opinion ID: 2508592
Heading Depth: 2
Heading Rank: 5

Heading: Debt Obligations

Text: Petitioner asserts that the panel apparently disregarded [his] explanation that default judgments and bankruptcy filings were related to business failures. [21] [R]emaining questions, Petitioner asserts, could have been answered had the hearing [panel] simply asked the questions that apparently were on their minds. Petitioner says that there was no question about misapplication or misdirection of client funds and opines that the panel abused its power to the extent that it suggest[s] ... he is undeserving because [his] business plans were not financially successful[.] Petitioner notes that one of his bankruptcy filings occurred nineteen years ago and that the most recent occurred over ten years ago. The hearing panel's findings with regard to Petitioner's numerous debt problems are not necessarily an indication the panel ignored Petitioner's explanations. The hearing panel's findings could be an indication that the hearing panel found the explanations to be unpersuasive or that the explanations did not mitigate the fact that Petitioner exhibited a very clear pattern of financial irresponsibility. We are cognizant that Petitioner's bankruptcies alone cannot justify denying a license to practice law. See 11 U.S.C.A. § 525(a). [22] The Oregon Supreme Court explained the distinction between considering an applicant's financial reputation and considering bankruptcy alone thus: The fact that petitioner filed for bankruptcy, standing alone, is not a factor which we consider in determining his moral fitness. The bankruptcy statutes prevent a rule which would preclude applicant's admission to the Bar solely because he declared bankruptcy. However, an applicant's handling of financial affairs is regularly considered in determining moral fitness. See, e.g., In re Cheek, 246 Or. 433, 425 P.2d 763 (1967); In re Connor, 265 Ind. 610, 358 N.E.2d 120 (1976); In re O'Brien's Petition, 79 Conn. 46, 63 A. 777 (1906). The bankruptcy statutes do not prohibit examination of the circumstances surrounding bankruptcy, as these circumstances illustrate an applicant's judgment in handling serious financial obligations.[FN4] FN4. The legislative history of the Bankruptcy Act indicates that Congress intended to bar a per se rule which would make filing in bankruptcy an automatic bar to a license or similar grant. Congress did not intend to preclude examination of the circumstances surrounding bankruptcy. The prohibition does not extend so far as to prohibit examination of the factors surrounding the bankruptcy, the imposition of financial responsibility rules if they are not imposed only on former bankrupts, or the examination of prospective financial condition or managerial ability. The purpose of the section is to prevent automatic reaction against an individual for availing himself of the protection of the bankruptcy laws.    (I)n those cases where the causes of bankruptcy are intimately connected with the license, grant, or employment in question, an examination into the circumstances surrounding the bankruptcy will permit governmental units to pursue appropriate regulatory policies and take appropriate action without funning afoul of bankruptcy policy. (Emphasis added) [sic] H.R.Rep. No.95-595, 95th Cong. 1st Sess. at 165 (1977), reprinted in 5 U.S.Code Cong. & Admin.News, 95th Cong.2d Sess. 5787, 5963, 6126 (1978). The Supreme Court of Minnesota recently considered the application for admission of a person who had discharged student loans in bankruptcy. After reviewing the legal considerations pertinent to the evaluation of such bankruptcies, the court said: We hold that applicants who flagrantly disregard the rights of others and default on serious financial obligations, such as student loans, are lacking in good moral character if the default is neglectful, irresponsible, and cannot be excused by a compelling hardship that is reasonably beyond the control of the applicant. Such hardship might include an unusual misfortune, a catastrophe, an over riding financial obligation, or unavoidable unemployment. In re Gahan, 279 N.W.2d 826, 831 (Minn.1979). The Supreme Court of Florida formulated a similar standard in cases of two applicants who had discharged student loans in bankruptcy. Florida Bd. of Bar Examiners re Groot, 365 So.2d 164 (Fla. 1978); Florida Bd. of Bar Examiners re GWL, 364 So.2d 454 (Fla.1978). Examining the circumstances surrounding applicant's discharge of his student loans, we find no extraordinary hardship which would compel resort to bankruptcy. When he declared bankruptcy, applicant's current liabilities did exceed his current assets, but he acknowledged before the Board of Bar Examiners that he could have managed his debts, including his student loans, had he wished to do so. His own explanation of his resort to bankruptcy is that he felt that society owed him an education. At the time, applicant was employed in a steady position, with a gross annual income of approximately $10,000. He faced no catastrophe or unusual misfortune. Further, he made no effort to adjust, extend, or renegotiate his student loans. On the other hand, he reaffirmed several other debts, those on which his creditors held security over property which he wished to retain. Applicant had a legal right to discharge his student loans in bankruptcy as he did, and our decision herein is not based on his exercise of that right. The circumstances of his bankruptcy, however, show a selfish exercise of legal rights and a disregard of moral responsibilities. The bankruptcy statutes prescribe only the criteria needed to discharge debts; they do not say what is required to demonstrate good moral character. Cf. Holmes, The Path of the Law, 10 Harv. L.Rev. 457, 459 (1897): If you want to know the law and nothing else, you must look at it as a bad man, who cares only for the material consequences which such knowledge enables him to predict. We need not decide whether we would find that applicant's moral character is wanting on the basis of his discharge of student loans alone. We declare to all attorneys and future applicants the importance of scrupulously honoring all financial obligations. With respect to this applicant, his discharge of student loans is a fact which we consider.[FN5] FN5. We also note that the Bankruptcy Act of 1978 changed the law, restricting the right to discharge student loans. Under the current statutes, unless there is a showing of undue hardship, an individual must make payments on student loans for five years before they are subject to discharge in bankruptcy. See 11 U.S.C.A. § 523(a)(8). In re Taylor, 647 P.2d at 466-67; Accord In re Anonymous, 74 N.Y.2d 938, 550 N.Y.S.2d 270, 549 N.E.2d 472, 473-74 (1989) ([T]he [bankruptcy] statute was not intended to shield debtors from reasonable inquiries about their ability to manage financial matters when the ability to do so is related to their fitness for the license sought.... A determination of unfitness must rest not on the fact of bankruptcy but on conduct reasonably viewed as incompatible with a lawyer's duties and responsibilities as a member of the bar. (Citations omitted.)); In re Gahan, 279 N.W.2d at 828-29 (The fact of filing bankruptcy or the refusal to reinstate obligations discharged in bankruptcy cannot be a basis for denial of admission to the bar.... Any refusal so grounded would violate the Supremacy Clause of the United States Constitution since applicable Federal law clearly prohibits such a result[,] ... and state law may not chill the exercise of that right.... However, these constitutional limitations do not preclude a court from inquiring into the bar applicant's responsibility or moral character in financial matters. (Citations omitted.)). Petitioner completed law school in 1980. According to the record, by 1985, Petitioner had unpaid debts totaling more than $90,000. The debts included nearly $36,000 in unpaid taxes, unpaid equipment leases, money borrowed to purchase office furniture and equipment, a business loan, and credit purchases of office supplies, including law books, and professional services. A bankruptcy discharge in 1985 provided Petitioner with a fresh start, but, by 1993, he was again unable to meet his obligations and listed outstanding unsecured debt of more than $373,000 that included more than $70,000 in unpaid office rent, as well as debts owed for various services and charge cards, some of which had been reduced to creditor judgments. The fact that the pattern of Petitioner's financial irresponsibility is related, for the most part, to businesses other than the practice of law is irrelevant. Cf. Bergan, 60 Haw. at 553-54, 592 P.2d at 818 (we will not hesitate to impose substantial sanctions upon an attorney for any act whether committed in a professional capacity or not which evidences want of personal honesty and integrity or renders such attorney unworthy of public confidence). The failure to pay debts is an appropriate subject for attempting to determine whether a bar applicant has shown financial responsibility and one of the specifically enumerated factors for determining whether a bar applicant has proven good character. See RSCH 1.3(c)(1)(v); cf. In re R.M.C., 272 Ga. 99, 525 S.E.2d 100, 101, cert. denied, 531 U.S. 854, 121 S.Ct. 133, 148 L.Ed.2d 86, reh'g denied, 531 U.S. 854, 121 S.Ct. 133, 148 L.Ed.2d 86 (2000) (Lack of fiscal responsibility, failure to cooperate with the Board, and a lack of candor are all bases on which certification may be denied.... It is not the fact of debt, but the absence of genuine effort to meet one's responsibilities which serves to establish a lack of the character and integrity expected and required of one who seeks to become a member of the Bar of Georgia. (Citations omitted.)); In re Gahan, 279 N.W.2d at 830 (The conduct of a bar applicant in satisfying his financial obligations has been widely recognized as a relevant factor in assessing good moral character.... The failure of a person to honor his legal commitments adversely reflects on his ability to practice law, evincing a disregard for the rights of others. (Citations omitted.)); Florida Bar Examiners v. G.M.C., 658 So.2d 76 (Fla.1995) (approved denial of application where Board concluded failure to pay twelve delinquent creditor accounts totaling more than $32,000, defaulted student loans totaling $50,000, and three unsatisfied judgments for failure to make timely payments on outstanding debts, exhibited pattern of irresponsible conduct or faulty judgment reflecting adversely on the applicant's ability to accept the responsibilities and perform the duties of a practicing attorney). Petitioner's credit history provides a clear and repeated pattern of irresponsibility with regard to his financial obligations. We are well aware that financial irresponsibility is a frequent subject of attorney disciplinary proceedings and often includes misappropriation of client funds to meet personal expenses. Petitioner's credit history is not one from which we can conclude that Petitioner's character would justify the trust of clients, adversaries, or others with regard to the professional duties owed to them.