CBA Professional Ethics & Standards 3 — Questions and Answers
Question 1: A bankruptcy professional who simultaneously serves as both a creditors' committee member and a purchaser of estate assets would violate which core ethical principle?
- The duty of diligence
- The prohibition against self-dealing (Correct answer)
- The rule against unauthorized practice of law
- The duty of competence
Correct answer: The prohibition against self-dealing
Purchasing estate assets while serving as a fiduciary for creditors constitutes self-dealing because personal financial interests conflict with the duty to maximize recovery for creditors.
Question 2: When a debtor fails to disclose a significant asset on Schedule A/B, the responsible professional who prepared the schedules has an obligation to:
- File amended schedules immediately and notify the trustee (Correct answer)
- Wait to see if the trustee independently discovers the asset
- Withdraw from representation without any additional disclosure
- Advise the debtor only if the omission appears intentional
Correct answer: File amended schedules immediately and notify the trustee
Professionals who discover omissions in court filings must amend the documents and notify the trustee to correct the record and fulfill duties of candor and competence.
Question 3: Under what circumstances may a bankruptcy trustee employ a professional who has a connection to a creditor without ethical violation?
- Only if the professional waives their fee entirely
- Never — any connection to a creditor is per se disqualifying
- If the connection is fully disclosed, found not to impair judgment, and approved by the court (Correct answer)
- When the creditor holding the connection consents in writing
Correct answer: If the connection is fully disclosed, found not to impair judgment, and approved by the court
11 U.S.C. § 327 allows employment of professionals with connections if they are 'disinterested' or the connection does not impair independence, provided full disclosure and court approval.
Question 4: A bankruptcy administrator must maintain client confidences except when:
- The client is a corporation rather than an individual
- Disclosure is required to prevent substantial financial harm to the estate (Correct answer)
- Another attorney requests the information during discovery
- The information relates to prepetition transactions
Correct answer: Disclosure is required to prevent substantial financial harm to the estate
Confidentiality yields when disclosure is necessary to prevent substantial financial harm, as protecting the estate and creditors is a paramount competing obligation in bankruptcy proceedings.
Question 5: Which action by a debtor's attorney would most clearly violate professional responsibility rules in a bankruptcy case?
- Filing a voluntary petition for a corporation without board authorization (Correct answer)
- Advising the debtor on exemptions available under state law
- Attending the 341 meeting of creditors with the debtor
- Objecting to a creditor's proof of claim on the debtor's behalf
Correct answer: Filing a voluntary petition for a corporation without board authorization
Filing a petition for a corporation without proper board authorization is an unauthorized act that violates both corporate governance rules and professional responsibility standards.
Question 6: A Chapter 13 trustee who routinely recommends the same financial counseling service owned by the trustee's spouse is guilty of:
- An undisclosed conflict of interest and self-dealing through a related party (Correct answer)
- Permissible referral practice if the service charges market rates
- A minor procedural violation correctable by disclosure
- No ethical violation if the debtor independently selects the service
Correct answer: An undisclosed conflict of interest and self-dealing through a related party
Directing estate-related business to a spouse's company constitutes undisclosed self-dealing by a fiduciary, violating conflict-of-interest rules regardless of whether rates are market-rate.
Question 7: The 'substantial compliance' standard in bankruptcy ethics most commonly applies to:
- Determination of whether fee applications adequately itemize services rendered (Correct answer)
- Evaluating whether a debtor's plan meets confirmation requirements
- Assessing whether creditor notices were properly served
- Measuring competence in adversary proceedings
Correct answer: Determination of whether fee applications adequately itemize services rendered
Courts apply a substantial compliance standard when reviewing fee applications, requiring sufficient detail to allow meaningful judicial review without demanding perfect itemization.
CBA Professional Ethics & Standards 3
A bankruptcy professional who simultaneously serves as both a creditors' committee member and a purchaser of estate assets would violate which core ethical principle?