Home -> Law Blog Directory -> Bankruptcy Blogs -> Bankruptcy Law Network

OR PHONE (866) 635-1838 for Bankruptcy Help, (866) 635-6190 for Divorce,
(866) 635-2689 for Personal Injury or (866) 635-9402 for Criminal Defense

Find a Local Lawyer

Bankruptcy (866) 635-1838
Divorce (866) 635-6190
Personal Injury (866) 635-2689
Criminal Defense (866) 635-9402

Bankruptcy

: Bankruptcy Law Network

New Supreme Court Ruling: Upholds Reform Law, Relaxes Lawyer Speech Rules

By Craig Andresen, Minnesota Bankruptcy Attorney

ADVERTISEMENTS

In Milavetz v. United States, 2010 WL 757616 (U.S. March 8, 2010), a unanimous U.S. Supreme Court upheld portions of the 2005 Bankruptcy Reform Act which had been challenged on constitutional grounds. Upheld were requirements that bankruptcy lawyers identify themselves as “debt relief agencies,” and that bankruptcy lawyers cannot advise clients to “load up” on new debts for the specific purpose of abusing the bankruptcy laws.

Opponents of the new law had feared that the courts would forbid bankruptcy lawyers from discussing, in any manner at all, the possibility that a client should incur new debt at the time of considering bankruptcy. For example, a potential bankruptcy client with a home mortgage having an excessive interest rate might be well advised to “incur a new debt” by refinancing into a mortgage with a low interest rate; or a potential bankruptcy client with a worn out, unreliable car, who barely makes it into work each morning, might be well advised to “incur a new debt” by financing a modestly priced new car, to avoid losing his job over being absent from work in the event the worn out car breaks down; or a potential bankruptcy client might be well advised to “incur a new debt” by rolling high interest credit card debts into a low interest consolidation loan.

In the first and third examples above, bankruptcy could possibly be avoided in the event that incurring new debt improved the client’s cash flow sufficiently. The Supreme Court held that the 2005 bankruptcy law did not intend to prevent lawyers from advising bankruptcy clients about non-abusive debt alternatives. It was permissible for lawyers to discuss mortgage refinancing, consolidation loans, or new car purchases with potential bankruptcy clients. What the 2005 bankruptcy law forbade, according to the court, was advising clients to incur more debt intending to discharge the new debt in a bankruptcy.

Full post as published by Bankruptcy Law Network on March 15, 2010 (boomark / email).