The Professional Effects of Filing Bankruptcy as an Attorney

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Filing for bankruptcy is devastating enough to the average person's credit rating. Going that route may hold dire professional consequences for attorneys, who are expected to show good moral character and fitness to practice law in all their public dealings. Potential clients are likely to look askance on an attorney who could not maintain his financial responsibilities. And licensing authorities may view bankruptcy as a major red flag if the attorney is struggling to maintain an existing practice or appealing for reinstatement after losing his right to practice law.

Character and Fitness Requirements

Filing a bankruptcy petition is not in itself considered sufficient grounds for denying or restricting a law license, according to federal bankruptcy judge Niles Jackson. However, nothing can prevent state bar association's investigating committee from examining the circumstances behind the bankruptcy, says Jackson. A Florida court used such reasoning in denying an applicant who discharged all her debts just three days before graduating law school.

Disbarment

Loss of an existing license, or disbarment, is another consequence. In 2009, attorney Frank P. Santulli lost his license over nearly decade-old unpaid debts and student loans. Ordered into a repayment plan in 2001, Santulli made little progress and filed for bankruptcy years later. The Texas Court of Appeals decided that such actions showed "a lack of trustworthiness" and were inconsistent with its character and fitness standards.

Filing for Reinstatement

Attorneys can apply for readmission to the bar, but must show that they have taken appropriate steps to rehabilitate their careers. Making progress in financial matters is one factor, as the Oregon Supreme Court found in 2007, when it denied Bruce A. Gunter's reinstatement petition. In doing so, the justices cited more than $200,000 in debt that Gunter accumulated between two bankruptcy filings. According to the court, such conduct could not satisfy character and fitness standards.

Conditional Admission

In some instances, the bar association's examining board may impose additional stipulations before it approves or restores a license. One option is the conditional admission, which figured prominently in an Oregon case that involved unfiled tax returns, and unpaid taxes. According to Jackson, the applicant had to work with a professional liability company before setting up his law practice -- with particular attention paid to lawyer trust and accounting practices.

Other Consequences

Showing a repeated pattern of financial neglect or responsibility may be enough to doom an application before it starts, according to Jackson. Sometimes, however, the examining board may simply table the request when collections, liens or judgments become known to them. Typically, this will be granted for a six-month period, says Jackson. The applicant then has the chance to make payments in good faith over an extended time period.

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