Two essential issues to bankruptcy practitioners are attorney retention and the threat of disqualification. These issues are closely related and are governed by several ethical rules and bankruptcy statutes. Generally, all legal professionals must abide by the standards imposed by their states’ ethical code, which are largely adapted from the American Bar Association Model Rules of Professional Conduct (the “Model Rules”). Bankruptcy practitioners, however, must also abide by section 327 of the United States Bankruptcy Code (the “Code”), which only permits the retention of “disinterested” professionals in a proceeding. If the attorney does not meet these standards, the presiding court must disqualify him from the proceeding.
The Model Rules and the Code are frequently applied together in bankruptcy practice to determine whether an attorney should be disqualified from a proceeding. However, this can be confusing and frustrating because there are inconsistencies and ambiguities between the Model Rules and the Code. As such, attorneys and courts may waste time and resources attempting to rationalize the two. This memo will discuss the Model Rules and the Code provisions applicable to attorney retention and disqualification to clarify their implications on bankruptcy practice and to help bankruptcy practitioners determine whether they are eligible to represent a client. Part I will analyze the relevant provisions of the Model Rules. Part II will analyze the relevant sections of the Code. Finally, Part III will conclude by identifying avoidable disqualification scenarios and suggesting methods for bankruptcy practitioners to limit the threat of disqualification.