Advisory Opinion: 1691

Year Issued: 1997

RPC(s): RPC 1.7; 1.8(e); 1.8(j); 8.4(a)

Subject: Loan to client to fund settlement; arranging for loan from third party


Under the facts that you have set forth in your letter, we understand that you are asking if RPC 1.8(e) would preclude you from loaning money to your clients who are in Chapter 13 bankruptcy. This money would fund a settlement between your clients and a secured creditor. In the process, that creditor's secured position would be assigned to you with a modification of the note reducing the principal amount to reflect the amount you lent to your clients. You would become a secured creditor in your clients' Chapter 13 plan. In the alternative, you have proposed that you could arrange for a friend to loan the money.

After consideration of these facts and RPC 1.8(e) and 1.8(j), and other issues that arise from this fact pattern, the Committee has concluded that it would be a violation of RPC 1.8(e) and 1.8(j) for you to proceed as proposed. We recognize that you have your clients' interest in mind in proposing this action, but the Rules of Professional Conduct, as currently drafted, do not provide for advancing funds to your client other than expenses of litigation, and settlement proceeds cannot be characterized as such. This RPC provision cannot be waived, even with the disclosure of the provisions in other sections of RPC 1.7 and 1.8.

Arranging for a friend of yours to make the loan and obtain a secured position would not be a conflict with RPC 1.8(e), but would raise issues which would require full disclosure and written consent under RPC 1.7(b). Depending on the circumstances, this may implicate RPC 8.4(a) and 1.7(a). The Committee does not express an opinion regarding the wisdom or liability of the attorney or the client in this arrangement.

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Advisory Opinions are provided for the education of the Bar and reflect the opinion of the Committee on Professional Ethics (CPE) or its predecessors. Advisory Opinions are provided pursuant to the authorization granted by the Board of Governors, but are not individually approved by the Board and do not reflect the official position of the Bar association. Laws other than the Washington State Rules of Professional Conduct may apply to the inquiry. The Committee's answer does not include or opine about any other applicable law other than the meaning of the Rules of Professional Conduct.