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U.S. Supreme Court Clarifies Portion of Bankruptcy Law Affecting Advice to Clients

March 9, 2010

Consumer bankruptcy attorneys around the United States and all of their clients scored a partial victory this week at the U.S. Supreme Court. Our San Bernardino bankruptcy lawyers wrote in December about Milavetz, Gallop & Milavetz v. United States, No. 08-1119, in which a Minnesota law firm challenged the 2005 changes to bankruptcy law. The Milavetz firm argued that a provision restricting bankruptcy attorneys from advising clients to take on more debt violates the First Amendment right to free speech. On March 8, the court ruled unanimously that it did not, but specified that advice to take on debt for a valid purpose is not a violation of the law. The National Law Journal reported March 8 that the court also said a requirement that bankruptcy law firms advertise as "debt relief agencies" was not unconstitutional compelled speech.

The 2005 bankruptcy law prohibits attorneys from advising clients to take on more debt "in contemplation" of filing for bankruptcy. This was intended to stop lawyers from telling clients to rack up debts that they can then get discharged in bankruptcy. However, the Milavetz firm was concerned that it would also stop attorneys from advising clients to take on debt for legal and positive reasons, such as to continue expensive medical treatments. The Supreme Court agreed that this advice would be legal. Interpreting the law narrowly, Justice Sonia Sotomayor said the law "is best understood to provide an additional safeguard against the practice of loading up on debt prior to filing." However, she and her colleagues stopped short of declaring this an unconstitutional restriction on lawyers' free speech. They also said the requirement to advertise as "debt relief agencies" was accurate about the lawyers' legal status and not unduly burdensome.

As Gardena individual bankruptcy attorneys, we are always pleased to have the law clarified for us by the highest court in the land. But we are disappointed that the ruling didn't go farther. The advice to take on debt "in contemplation" of bankruptcy is already illegal under state ethics laws and can get the bankruptcy petition denied. That means this is an unnecessary law, even if it doesn't rise to the level of a First Amendment violation. As for the "debt relief agency" requirement, it's clear that the law defines attorneys as "debt relief agencies," but we find this unnecessarily confusing to the consumer. Most people think of "debt relief" organizations as non-legal organizations, including some that are for profit. We are proud to be a law firm and will continue to advertise as such, along with the legally required notice that we are a "debt relief agency."

Based in Anaheim, Howard Law PC represents people throughout California who are considering filing for bankruptcy. We stand by our clients through every step of the process, from the free initial meeting to the day your debts are completely discharged. Our Oceanside consumer bankruptcy lawyers start each case by thoroughly reviewing the client's finances, to make sure that bankruptcy is truly the best choice. If it is not, we can sometimes offer alternatives like mortgage loan modifications or direct settlement of debts. If it is, we will help clients make the decision between Chapter 13 and Chapter 7 bankruptcy and guide them through the sometimes complicated filing process. When necessary, we can also step in and protect clients from overzealous creditors that didn't get the message to back off.

If you're in so much debt that you don't think you'll ever get out, don't hesitate to call Howard Law for help. We offer free, confidential case evaluations, so you risk nothing by speaking to us. To set one up, call us toll-free today at 1-800-872-5925 or contact us through our site.