Bankruptcy Attorneys And Free Speech - Cathy Ta And Alexander Brand Explore The Lines In Riverside Lawyer Magazine

While the economy is doing better of late, consumers are always at risk of being scammed and consumers who seek debt relief are no exception. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). The purpose of the BAPCPA was to enact a series of protections for consumers seeking debt relief through the bankruptcy courts and through debt relief providers, including: (1) restricting attorneys from advising clients to take on new debt prior to filing for bankruptcy; and (2) prohibiting attorneys from advising clients to incur new debt to pay for attorney fees prior to filing for bankruptcy.¹ The net effect of these protections was for the government to restrict what attorneys can and cannot say to their clients.

These restrictions on an attorney’s free speech rights were challenged in 2010 and 2018 respectively, whereby the Supreme Court and the 11th Circuit Court of Appeals upheld them respectively. It is important that attorneys and consumers alike are aware of these restrictions so that attorneys do not inadvertently run afoul of them and consumers are protected from attorneys who may violate them.

There is No Question that Bankruptcy Attorneys are Debt Relief Agencies
The BAPCPA applies to debt relief agencies; in turn, bankruptcy attorneys are considered debt relief agencies under the BAPCPA. A debt relief agency is any person who provides bankruptcy assistance to another individual for compensation, including providing legal advice for an actual or potential bankruptcy case.² Under a plain language interpretation of these definitions, the Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States, 559 U.S. 229 concluded that attorneys are clearly debt relief agencies subject to the BAPCPA.³

As Debt Relief Agencies, Attorneys Cannot Advise Clients to Incur Additional Debt Prior to Filing Bankruptcy and to Abuse Bankruptcy Laws
Under BAPCA, debt relief agencies cannot advise a client or potential client “to incur more debt in contemplation of” filing a bankruptcy case.⁴ In Milavetz, this restric-tion on speech was challenged under the First Amendment as unconstitutionally vague and prohibiting “not only affirmative advice, but also any discussion of the advantages, disadvantages, or legality of incurring more debt.”⁵

The Supreme Court rejected the argument, ruling that the restriction is to be construed narrowly⁶ such that it prohibits a bankruptcy attorney “only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.”⁷ If there is a legitimate reason for incurring more debt prior to filing bankruptcy, the attorney can still discuss the pros and cons of incurring that debt with the client and advise the client accordingly. The only restriction on an attorney’s advice to a client is that the attorney cannot advise the client to take on more debt in an...