Almost five years after the enactment of the Bankruptcy Abuse and Consumer Protection Act, the Supreme Court recently ruled in Milavetz, Gallop & Milavetz, P.A., et al v. United States that attorneys are "debt relief agencies" who are limited in their ability to provide pre-bankruptcy planning advice to consumers and obligating them to provide additional disclosures in their advertisements.
Attorneys Are Debt Relief Agencies Under BAPCPA
The Milavetz plaintiffs sought a declaratory judgment against the United States that the BAPCPA restrictions imposed upon a debt relief agency did not apply to attorneys and are unconstitutional as applied to an attorney or law firm. The Supreme Court affirmed the Eighth Circuit's holding that attorneys are "debt relief agencies" pursuant to 11 USC § 101(3). In reviewing the definition of "bankruptcy assistance" set forth in 11 USC § 101(4A), the Supreme Court reasoned that the definition included several services commonly performed by attorneys. The Supreme Court further reasoned that the plain language of the statute clearly indicates that attorneys are debt relief agencies when they provide qualifying services to individuals with primarily consumer debt. In rejecting Milavetz's contention that attorneys were intended to be excluded from the provision for lack of an express reference, the Supreme Court held that such a reading would strip all meaning from the provision and pointed to other comparable provisions (i.e. Fair Debt Collection Practices Act) that have also been upheld when applied to attorneys.
Debt Relief Agencies Are Prohibited From Providing Certain Pre-Bankruptcy Advice
The Supreme Court rejected the Eighth Circuit's holding that the prohibition of 11 USC § 526(a)(4) upon debt relief agencies to "advise an assisted person either to incur more debt in contemplation of filing bankruptcy" was unconstitutional as applied to attorneys. The Supreme Court articulated that the prohibition was to preclude attorneys from advising client to "load up" on debt that would be discharged in bankruptcy. As an example of acceptable conduct, the Supreme Court stated that an attorney may advise its client to refinance if it provided the opportunity for lower interest rates or monthly payments. However, under this case, it would not be acceptable for the attorney to advise the client to refinance if there was an absence of some other legitimate non-bankruptcy purpose since this could prove to be a strong indicator of a violation.
Required Disclosures Are Constitutional As Applied to Attorneys
Finally, the Supreme Court held that the additional disclosure requirements imposed by 11 USC § 528 are constitutional as applied to attorneys. The statutory disclosures require an attorney to include in their advertisements pertaining to bankruptcy assistance services that they "help people file for bankruptcy relief." Under the more relaxed standard governing commercial speech, the Supreme Court held that these disclosures do not restrain speech but instead merely require the addition of certain language to advertisements pertaining to bankruptcy assistance services. The Supreme Court also found that the statute has flexibility so that debt relief agencies may tailor their disclosures so long as the resulting statements are substantially similar to the statutory examples.
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