Submitted by Jen Jones on Tue, 01/05/2010 - 10:35am
Last month, the Supreme Court heard arguments in an interesting case about bankruptcy attorneys and free speech. The new bankruptcy law passed in 2005 contains a provision that prohibits bankruptcy attorneys from advising their clients to take on new debt before filing bankruptcy. In United States vs Milavetz, a 73-year old attorney from Minnesota is challenging that law.
The plaintiffs argue that the case represents a clear violation of attorney's freedom of speech. Constitutional lawyers think this argument has merit: how can it be legal to interfere with a lawyer's ability to advise his clients? There are legitimate reasons that people thinking about filing bankruptcy might need to take on new debt. In those cases, an attorney's in a difficult position: does he violate federal law or does he fail in his ethical responsibility to his client?
For example, a debtor who is about to file for Chapter 13 bankruptcy might benefit by refinancing his mortgage, securing a lower rate before he files – in this case, since he'll be paying less on his mortgage, there will actually be more money to contribute to his Chapter 13 plan. Or the debtor facing bankruptcy might purchase a new, reliable car to insure that he or she can get to work on time. What about an emergency medical situation? There are many situations in which taking on debt might actually be the responsible thing to do – but attorneys are prohibited from pointing these things out.
In oral arguments in the Supreme Court case, the government didn't deny that there may indeed be circumstances in which someone about to file for bankruptcy could or should take on new debt. The law states that it's prohibited to advise someone “to incur more debt in contemplation of such a person filing” for bankruptcy. The government argued that, in this case, 'in contemplation of' actually means 'actions taken with an intent to abuse the protections of the bankruptcy system'. The restriction is not, they argue, against lawyers giving appropriate advice; it applies only to helping clients run up huge new debts that will never be repaid.
Really? That's what 'in contemplation of' means? Wouldn't most people – even most lawyers – read 'in contemplation of (filing bankruptcy)' as 'someone who's thinking about filing bankruptcy'?
Also, it's important to remember that running up debts you have no intention of paying is illegal: it's civil fraud for sure, and maybe even criminal theft. All lawyers are already prohibited from advising their clients to do something illegal! Many lawyers feel that the provision was inserted into the bankruptcy bill as part of a whole host of punitive measures against consumers filing bankruptcy and their lawyers.
Of course, this is a very small part of bankruptcy law and doesn't affect most of the interactions between attorney and client. An experienced bankruptcy attorney is able to give their clients the best advice even if, when it comes to the area of additional debt, they have to be creative about it. Some lawyers, for example, will set out the law in detail for their clients, without actually saying 'this is what you should do.' Still, it's not right – and shouldn't be legal – for the government to interfere with the attorney-client relationship like this.
Will the Supreme Court overturn the provision? Many observers think so. Others suggest that the court will decide that the provision only prohibits advice that was already illegal. Obviously, we all have to wait and see until the Court announces their decision this spring.
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