Consumer Bankruptcy Firm Waives $90K in Fees After USTP Inquiry Reveals Lapses in Diligence

A consumer law firm agreed to waive more than $90,000 in fees after an investigation by the Department of Justice's U.S. Trustee Program (USTP) revealed that the firm filed a series of bankruptcy cases with false financial information.

On July 22, the Bankruptcy Court for the Northern District of Illinois entered an order memorializing the agreement between the USTP and the Semrad Law Firm, also known as DebtStoppers. The agreement follows an investigation by the USTP's Chicago office that found Semrad failed to exercise due diligence before filing 31 cases on behalf of consumer debtors whose sworn bankruptcy documents contained financial information that was materially inconsistent with the debtors' federal tax returns.

Bankruptcy law requires debtors' attorneys to exercise independent diligence and care in ensuring that the information in their clients' bankruptcy documents have evidentiary support. But Semrad failed to review the debtors' tax returns or tax transcripts before filing these cases. If it had, the firm would have discovered that the debtors had claimed significantly higher earnings and higher withholdings to generate sizeable refunds from their tax returns.

"Semrad cannot justify its fees for its lax approach to preparing these 31 cases," said Acting U.S. Trustee Adam Brief of Region 11, which includes the Northern District of Illinois. "The firm failed its clients and the courts by allowing the spread of false information. The USTP will continue to aggressively pursue consumer debtors' attorneys who fail to fulfill their basic obligations."

Under the agreement, Semrad must return more than $26,000 to the debtors and notify them that nothing more is due under their fee agreements, for a total value of more than $90,000. Additionally, two of the firm's attorneys must complete at least three hours of continuing legal education on professional responsibility in bankruptcy.

The USTP's mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders - debtors, creditors and the public. The USTP consists of 21 regions with 82 field offices nationwide and an Executive Office in Washington, D.C. Learn more about the USTP at https://www.justice.gov/ust.