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BAPCPA Gag Rule Found Constitutional by Fifth Circuit

By Tara Twomey

Rarely do we get two important consumer bankruptcy decisions from the circuit courts in the same week, but it appears this is no ordinary week.  As noted previously, the Seventh Circuit this week decided an important means test issue, and yesterday, the Fifth Circuit Court of Appeals in emIn re Hersh/em, No. 07-10226 (5th Cir. Dec. 18, 2008) rendered a decision in a case challenging the constitutionality of sections 526(a)(4) and 527(b).  These two sections are part of the debt relief agency provisions added by BAPCPA./p After finding that bankruptcy attorneys qualify as ?debt relief agencies? under 11 U.S.C. § 101(12A), the court affirmed the district court?s holding that § 527(b), which compels that certain information regarding bankruptcy proceedings be conveyed by the ?debt relief agency? to ?assisted persons,? does not violate the First Amendment. The court reversed the district court?s finding that § 526(a)(4), which prohibits an attorney from advising his or her client to incur debt in contemplation of filing for bankruptcy, is facially unconstitutional./p In finding that § 526(a)(4) does not offend the First Amendment, the court applied the doctrine of constitutional avoidance to narrowly interpret the provision such that it would fall within constitutional parameters. Thus, the court construed the phrase ?in contemplation of? to suggest that the prohibition is coupled with an implicit requirement that the speech only be prohibited when it constitutes an intent to abuse the bankruptcy system. Here, the court deviated from the Eighth Circuit majority opinion in emMilavetz,Gallop amp; Milavetz, P.A., v. United States/em, 541 F.3d 785 (8supth/sup Cir. 2008), which held that the provision was facially unconstitutional./p

Full post as published by Credit Slips on December 19, 2008 (boomark / email).