CBA Professional Ethics & Standards 2 — Questions and Answers
Question 1: A bankruptcy administrator discovers that a trustee has been depositing estate funds into a personal account temporarily before transferring them. What is the administrator's primary ethical obligation?
- Ignore it if funds are eventually transferred correctly
- Report the conduct to the appropriate supervising authority (Correct answer)
- Counsel the trustee privately and allow self-correction
- Document the issue but take no action unless repeated
Correct answer: Report the conduct to the appropriate supervising authority
Mishandling estate funds, even temporarily, constitutes a breach of fiduciary duty that must be reported to the supervising authority regardless of eventual correction.
Question 2: Under the ABI Model Rules, a bankruptcy professional must avoid conduct that creates the appearance of impropriety primarily because:
- It increases administrative costs for the estate
- Public confidence in the bankruptcy system depends on perceived integrity (Correct answer)
- Appearance standards are required by the Bankruptcy Code
- Other professionals may file complaints with the court
Correct answer: Public confidence in the bankruptcy system depends on perceived integrity
The appearance-of-impropriety standard protects public trust in judicial administration, which is foundational to the bankruptcy system's legitimacy.
Question 3: When a debtor's attorney also represents a creditor holding a claim against the estate, this situation is best described as a:
- Conflict of interest requiring disclosure and likely disqualification (Correct answer)
- Permissible dual representation with written consent
- Moot issue since the estate is administered separately
- Minor procedural concern addressable by a fee application
Correct answer: Conflict of interest requiring disclosure and likely disqualification
Representing both a debtor and a creditor in the same bankruptcy proceeding creates an actual conflict of interest that requires disclosure and typically disqualification.
Question 4: A Chapter 7 trustee receives an offer from a buyer who is a former business associate. The trustee must:
- Accept the offer if it is the highest bid received
- Disclose the relationship to the court and seek guidance before proceeding (Correct answer)
- Decline the offer automatically to avoid any appearance of bias
- Consult only with the debtor before accepting
Correct answer: Disclose the relationship to the court and seek guidance before proceeding
Trustees must disclose relationships with potential buyers to the court because such connections could compromise the trustee's duty to maximize estate value impartially.
Question 5: Which standard governs the reasonableness of professional fees charged to a bankruptcy estate under 11 U.S.C. § 330?
- Hours billed multiplied by the professional's standard hourly rate
- The actual, necessary cost of services beneficial to the estate (Correct answer)
- A flat percentage of total estate assets
- Whatever amount is agreed upon in the engagement letter
Correct answer: The actual, necessary cost of services beneficial to the estate
Section 330 requires fees to reflect actual, necessary services that benefited the estate, evaluated by the court based on multiple factors including time, nature, and results.
Question 6: A bankruptcy administrator who learns of potential fraud by a debtor during a 341 meeting is ethically required to:
- Confront the debtor immediately in the meeting
- Preserve the information confidentially unless the debtor consents to disclosure
- Refer the matter to the U.S. Trustee or appropriate authorities (Correct answer)
- Wait until the case closes before taking any action
Correct answer: Refer the matter to the U.S. Trustee or appropriate authorities
Suspected bankruptcy fraud must be referred to the U.S. Trustee or law enforcement authorities, as administrators have an overriding obligation to protect the integrity of the proceeding.
Question 7: The duty of candor toward the tribunal requires a bankruptcy administrator to:
- Advocate exclusively for the party they represent regardless of known falsehoods
- Correct false statements of fact or law made to the court, even if previously submitted (Correct answer)
- Limit disclosures to information specifically requested by the judge
- Maintain confidentiality about all communications with clients
Correct answer: Correct false statements of fact or law made to the court, even if previously submitted
Candor to the tribunal is a paramount ethical duty requiring professionals to correct false or misleading statements, even those previously made to the court.
CBA Professional Ethics & Standards 2
A bankruptcy administrator discovers that a trustee has been depositing estate funds into a personal account temporarily before transferring them.
What is the administrator's primary ethical obligation?