Bankruptcy

BANKRUPTCY PROVISION FOUND TO VIOLATE LAWYERS? RIGHT TO FREE SPEECH

By J. Michael McBride

In the case of Milavetz, Gallop & Milavetz, et al. v. The United States of America, the Eighth Circuit Court of Appeals has ruled that a provision of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act violates the free speech rights of lawyers, stating the provision “prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice.”

The provision at issue is 11 U.S.C. § 526(a)(4), which prohibits lawyers from advising clients to incur debt prior to filing their bankruptcy cases. However, as the Court in this case stated, “There are certain situations where it would likely be in the assisted person’s, and even the creditors’, best interest for the assisted person to incur additional debt in contemplation of bankruptcy.” The Court cited examples such as refinancing a mortgage to lower a house payment, or purchasing a new vehicle to ensure reliable transportation to and from work.

While the Eighth Circuit is the first appellate court to rule on the constitutionality of this provision of the BAPCPA, similar cases are making their way through other lower courts. According to Erwin Chemerinsky, dean of the University of California-Irvine School of Law and a Constitutional law professor, the invalidated provision was the most significant constitutional problem with the bankruptcy law. “This is an issue that is going to make it to the Supreme Court,” he said.

The case was filed by Minnesota law firm Milavetz, Gallop & Milavetz shortly after the 2005 law went into effect. Barbara Nilva Nevin, a lawyer with the firm, stated, “We have a right to help our clients put their affairs in order before they file for bankruptcy.”

A spokesman for the U.S. Department of Justice said the department was reviewing the decision.

Here is a link to the full article:
http://www.nasdaq.com/aspxcontent/NewsStory.aspx?cpath=20080904%5cACQDJON200809041827DOWJONESDJONLINE000911.htm&&mypage=newsheadlines&title=UPDATE:%20Court:%20Bankruptcy%20Provision%20Violates%20Free%20Speech

Kathleen

Full post as published by Texas Lawyer Blog on September 08, 2008 (boomark / email).