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Bankruptcy Ban Unconstitutional

Put Ban on Bankruptcy Lawyers' Advice Ruled Unconstitutional down as better late than never. I drafted this post a while back but have not been able to find the time to post.:

"A provision of the 2005 bankruptcy reform law that prohibits attorneys from advising their clients to take on more debt before filing for bankruptcy is unconstitutional, a divided federal appeals court has ruled.

The 8th U.S. Circuit Court of Appeals panel ruled 2-1 that the provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 improperly restricts attorneys' free-speech rights.

The reform law prohibits 'debt-relief agencies' from giving certain kinds of advice. One provision, Section 526(a)(4), specifically prohibits such agencies from counseling debtors to incur more debt.

Meanwhile, two other provisions, Sections 528(a)(4) and (b)(2), require debt-relief agencies to include in their bankruptcy-related advertisements a disclosure to the general public stating: 'We are a debt-relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.'

Bankruptcy lawyers are concerned that the law's definition of 'debt-relief agencies' applies to them. If it does, they say, it would seriously restrict their ability to counsel their clients, preventing them from advising their clients to take certain actions that might avoid the need for filing for bankruptcy."

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The court held that attorneys are debt-relief agencies under the reform law because its broadly worded definition includes "any person who provides any bankruptcy assistance" for payment.

The panel pointed out that the law lists five specific exclusions from the definition, but the exclusions do not included attorneys. If Congress meant to exclude attorneys from the definition of debt-relief agencies, it would have done so, the court said.

But the panel split 2-1 on whether the Section 526(a)(4) bar on counseling to incur additional debt was unconstitutional.

I hope time has come to reconsider the 2005 revision to the Bankruptcy Code.

Full post as published by Indiana Civil & Business Lawyer on November 14, 2008 (boomark / email).