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Supreme Court hears case on bankruptcy attorneys advice restriction
WASHINGTON (12/8/09)--The Supreme Court was asked last week to declare unconstitutional a provision in 2005 federal bankruptcy amendments that forbid lawyers from advising their clients to “incur more debt…in contemplation of bankruptcy.” U.S. Courts of Appeals have split on this provision of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, which imposes restrictions on the advice which people being paid to file bankruptcy cases can give to their clients. The Credit Union National Association (CUNA) supported adding this provision to the bankruptcy law to protect creditors from having people take out loans in anticipation of bankruptcy. In 2008, the 8th Circuit Court of Appeals ruled that the BAPCPA provision that prohibits “debt relief agencies” from counseling consumer debtors to incur additional debt violates the First Amendment’s free speech clause as applied to attorneys (Milavetz, Gallop & Milavertz v. United States). The law firm plaintiff argued that the law is unconstitutional because it prohibits attorneys from relaying “truthful information about entirely lawful activity,” and there may be times when taking on more debt is the appropriate thing to do, such as buying a car to get to work or refinancing a mortgage loan to get a lower rate. The U.S. Justice Department defended the provision, saying that the intent of the law isn’t to prohibit lawful advice but to protect clients from “improper, unethical, abusive or even…criminally fraudulent advice by the attorney.” Several justices posed a number of hypotheticals including when a lawyer could advise a client to get needed medical attention or what a lawyer was supposed to do if a client talked about filing for bankruptcy and taking a trip to Tahiti. They also raised the issue of the person borrowing to pay the fee of the bankruptcy attorney. The Supreme Court will rule on this case in 2010.


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