Supreme Court Upholds Constitutionality of Debt Relief Agency Provisions

A unanimous Supreme Court has ruled that attorneys are "debt relief agencies" and that the provisions prohibiting debt relief agencies to advise debtors to incur debt in contemplation of bankruptcy and the mandatory disclosures required are constitutional. United States v. Milavetz, Gallop & Milavetz, P.A., No. 08-1119 (3/8/10). However, in doing so, the Court adopted a narrow reading of the speech restriction, finding that it did not apply to advice to incur debt for a permissible purpose.

Justice Sotomayor delivered the opinion for the Court. Justices Scalia and Thomas filed opinions concurring in part and concurring in the judgment.

Lawyers As Debt Relief Agencies

The Court had no trouble finding that attorneys were debt relief agencies. Justice Sotomayor wrote:

In advocating a narrower understanding of that term, Milavetz relies heavily on the fact that Sec. 101(12A) does not expressly include attorneys. That omission stands in contrast, it argues, to the provision's explicit inclusion of "bankruptcy petition preparer[s]"--a category of professionals that excludes attorneys and their staff, see Sec. 110(a)(1). But Milavetz does not contend, nor could it credibly, that only professionals expressly included in the definition are debt relief agencies. On that reading, no professional other than a bankruptcy petition preparer would qualify--an implausible reading given that the statute defines "debt relief agency" as "any person who provides any bankruptcy assistance to an assisted person . . . or who is a bankruptcy petition preparer."

Opinion of the Court, pp. 6-7.

This is no great surprise.

Advising Assisted Persons to Incur Debt In Contemplation of Bankruptcy

Having concluded that attorneys were debt relief agencies, the court turned its attention to whether the restrictions on debt relief agencies were constitutional. The first provision considered was Sec. 526(a)(4), which prohibits a debt relief agency from advising an assisted person to "incur more debt in contemplation of such person filing a case under this title."

The Supreme Court rejected the Eighth Circuit's conclusion that this was a broad restriction which precluded an attorney from advising a prospective debtor to incur any debt while contemplating bankruptcy regardless of whether it was in the debtor's best interest. Thus, the issue was whether the phrase "in contemplation of" meant "while considering whether to file bankruptcy" or something more narrow. The Court stated:

After reviewing these competing claims, we are persuaded that a narrower reading of Sec. 526(a)(4) is sounder, although we do not adopt precisely the view the Government advocates. The Government's sources show that the phrase "in contemplation of" bankruptcy has so commonly been associated with abusive conduct that it may readily be understood to prefigure abuse. As used in Sec. 526(a)(4), however, we think the phrase refers to a specific type of misconduct designed to manipulate the protections of the bankruptcy system. In light of our decision in Pender and in context of other sections of the Code, we conclude that Sec. 526(a)(4) prohibits a debt relief agency from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.

Opinion of the Court, pp. 12-13.

The Court went on to on its narrow construction, stating, "In context, Sec. 526(a)(4) is best understood to provide an additional safeguard against the practice of loading up on debt prior to filing." The Court further explained:

Covered professionals remain free to tal[k] fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case. (citation omitted). Section 526(a)(4) requires professionals only to avoid instructing or encouraging assisted persons to take on more debt in that circumstance. . . . Even if the statute were not clear in this regard, we would reach the same conclusion about its scope because the inhibition of frank discussion serves no conceivable purpose within the statutory scheme.

Opinion of the Court, p. 16.

Having concluded that the statute had a narrow focus, the Court found that it was constitutional.

Mandatory Disclosures

Section 528 requires debt relief agencies to make certain statements, such as:

"We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code."

The Court found that this provision was aimed at preventing misleading commercial speech and thus was permissible so long as it was reasonably related to the government's interest in preventing deception of consumers. The Court addressed one of the most annoying aspects of the statute, the fact that attorneys must use the newly coined term "debt relief agencies."

Because Sec. 528 by its terms applies only to debt relief agencies, the disclosure are necessarily accurate to that extent: Only debt relief agencies must identify themselves as such in their advertisements. This statement provides interested observers with pertinent information about the adviser's services and client obligations.

Opinion of the Court, pp. 21-22.

In other words, because Congress defines consumer bankruptcy attorneys as "debt relief agencies," it is not misleading to make them state this fact. This analysis does not really address whether the term is demeaning or whether the reference to "agencies" is misleading. Perhaps the result would have been different if Congress had chosen a term which more obviously intended to insult. For example, if Congress had required consumer bankruptcy attorneys to state, "We are unethical, thieving sleazebags who you should be embarrassed to associate with," the result might be different. By choosing a relatively innocuous term, Congress was able to meet the low bar for being rationally related.

The Court also dismissed the argument that the statute could be construed to apply to firms which only represented creditors and thus would be misleading. The Court noted that it was in a section of the Code labeled "Debtor's Duties and Benefits."

In context, reading Sec. 528 to govern advertisements aimed at creditors would be as anomalous as the result of which Milavetz complains. Once again, we decline Milavez's invitation to adopt a view of the statute that is contrary to its plain meaning and would produce an absurd result.

Opinion of the Court, pp. 22-23.

The Concurrences

Justice Scalia wrote a three page concurring opinion expressing his disagreement with a footnote which relied upon the legislative history to BAPCPA. He stated:

Such statements tell us nothing about what the statute means, since (1) we do not know that the members of the Committee read the Report, (2) it is almost certain that they did not vote on the Report (that is not the practice), and (3) even if they did read and vote on it, they were not, after all, those who made this law. the statute before us is a la because its text was approved by a majority vote of the House and the Senate, and was signed by the President. Even indulging the extravagant assumption that Members of the House other than members of its Committee on the Judiciary read the report (and the further extravagant assumption that they agreed with it), the Members of the Senate could not possibly have read it, since it did not exist when the Senate passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. And the President surely had more important things to do.

The footnote's other source of legislative history is truly mystifying. For the proposed that "the legislative record elsewhere documents misconduct by attorneys" which was presumably the concern of Congress, the court cites a reproduction of a tasteless advertisement that was (1) an attachment to the written statement of a witness, (2) in a hearing held seven years prior to this statute's passage, (3) before a subcommittee of the House considering a different consumer bankruptcy reform bill that never passed. "Elsewhere" indeed.

Concurring Opinion of Justice Scalia, p. 2.

Justice Thomas wrote separately to disagree with the Court's analysis of the Sec. 528 advertising requirements, but not to disagree with the result. He stated, "I have never been persuaded that there is any basis in the First Amendment for the relaxed scrutiny this Court applies to laws that suppress nonmisleading commercial speech." He found that in order to regulate speech, there must be a showing that "the particular advertising is inherently likely to deceive or where the record indicates that a particular form of advertising has in fact been deceptive."

However, in this particular case, the specific advertisements used by the Milavetz firm were not in the record. Because there was at least one set of facts (ad promising to wipe away debts without mentioning bankruptcy) in which the law could be constitutionally applied, he refused to strike it down on its face.

Conclusion

BAPCPA has survived its first constitutional challenge. However, the Court's ruling emphasizes a narrow, reasonable construction, one which would avoid the theoretical parade of horribles which the statute could have unleashed. In the heady days of 2005 when this legislation was first passed, there was concern that it signaled open season on consumer bankruptcy and consumer bankruptcy lawyers. For a period of time, filings dropped to a record low. However, as time has passed, filings are on their way back up and lawyers have learned to live with the new law. As a result, the Supreme Court's upholding of the debt relief agency provisions reflects the fact that the statute has grown up to be more of a house cat than a devouring lion.

The other take away from this case is NEVER, EVER cite legislative history to Justice Scalia.

Supreme Court Grants Cert in Attorney Speech Case

The Supreme Court has granted certiorari in Milavetz, Gallop & Milavetz, P.A. v. United United States, 541 F.3d 785 (8th Cir. 2008), cert granted, 2009 U.S. LEXIS 4277 (6/8/09). The Milavetz case held that the provision in BAPCPA preventing attorneys from advising debtors to incur debt in contemplation of bankruptcy was an unconstitutional restriction on the right to free speech under the First Amendment. Although it is not in direct conflict, the Fifth Circuit took a somewhat different tack on this issue, finding that the statute was not facially overbroad and reserving the issue of whether it could be overbroad as applied in a specific case. Hersh v. United States, 553 F.2d 743 (5th Cir. 2008). Thus, the Eighth Circuit said that the statute was unconstitutional on its face, while the Fifth Circuit held that a constitutional challenge would have to wait until there was an actual case where an attorney was punished for providing advice contrary to the statute.

Milavetz also had two other rulings, finding that attorneys were Debt Relief Agencies and finding that the mandatory disclosures (i.e., "We a Debt Relief Agency") was constitutional. Most courts have agreed with these conclusions.

Milavetz had one interesting sidenote. The Commercial Law League of America, a professional group, which represents the interests of creditors, filed an amicus brief in support of the plaintiffs' position. Thus, this is a case where a creditor's trade group spoke up for the speech rights of debtor's lawyers.

The order granting certiorari did not limit itself, so that it appear that the Supreme Court will take up all three issues.

Fifth Circuit Relies on Constitutional Avoidance to Uphold Sec. 526(a)(4)

In a departure from rulings by the Eighth Circuit and several lower courts, the Fifth Circuit has held that Sec. 526(a)(4), which limits the advice debt relief agencies can give potential debtors "in contemplation of" bankruptcy, passes constitutional scrutiny. Susan B. Hersh v. United States of America, No. 07-10226 (5th Cir. 12/18/08). The Fifth Circuit also found that attorneys were "debt relief agencies" and upheld the constitutionality of Sec. 527.

Section 526(a)(4) is found amongst three sections regulating the activities of "debt relief agencies." It states that a debt relief agency shall not "advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title." Several courts, including the Eighth Circuit, have held that this statute is an overly broad restriction on protected speech because it prohibits beneficial speech as well as abusive advice. Milavetz, Gallop & Milavetz, P.A. v. United States, 541 F.3d 785 (8th Cir. 2008).

The Fifth Circuit acknowledged that if the statute were interpreted literally, it could be problematic.

If interpreted literally and broadly, section 526(a)(4) would raise serious consitutional problems because, as Hersh suggests, it would restrict some speech that is protected by the First Amendment. The statute does not expressly qualify its restriction on advice to situations in which incurring more debt would be an abuse of the bankruptcy system. Thus, if interpreted literally, section 526(a)(4) creates a blanket restriction on attorneys advising clients to incur any debt when intending, or contemplating whether to, file for bankruptcy under any circumstances. It would prohibit some attorney advice that would not be abusive to the bankruptcy system, harmful to creditors, or harmful to debtors. Thus, interpreted literally, section 526(a)(4) may apply to speech that is protected by the First Amendment.

Slip op. at 15.

However, at this point, the Fifth Circuit took a cue from the dissent in Milavetz and noted that the constitional problem could be avoided through a narrow construction. While section 526(a)(4) could prohibit some permissible speech, it also restricts malignant speech as well. Under the doctrine of constitutional avoidance, courts will decline to hold an act unconstitutional when another legitimate construction is available. The court concluded that this was possible in the case of speech in contemplation of bankruptcy.

To avoid potential constitutional questions regarding section 526(a)(4)'s restrictions on speech, this court construes the statute to prevent only a debt relief agency's advice to a debtor to incur debt in contemplation of bankruptcy when doing so would be an abuse of the bankruptcy system. In so interpreting the statute, we avoid the constitutionality questions raised by Hersh (and those relied on by the Milavetz majority) and conclude that the statute only affects unprotected speech.

Slip op. at 19.

Having decided to avoid the constitutional issue, the Fifth Circuit took some pains to explain why its construction was plausible, noting that constitutional avoidance "is not a license for the judiciary to rewrite language enacted by the legislature." The court pointed out that the "in contemplation" phrase is frequently used to connote bad intent. The court also stated that the civil remedies for violation of the section, which include recovering damages for the benefit of the debtor and enjoining bad conduct, indicate a purpose to protect debtors from abusive advice rather than to shield them from good counsel. Finally, the court found that curbing abusive attorney practices was a major concern of BAPCPA, so that such an intent could be used to inform the statute's construction.

Milavetz and Hersh represent two different approaches to the issue of regulating attorney speech. The Milavetz decision focuses primarily on not chilling protected speech. On the other hand, the Hersh opinion seeks to protect regulation of abusive speech. With a split within the Eighth Circuit and between the Fifth and Eighth Circuits, this issue may be heading for the Supreme Court.

BAPCPA Found to Unconstitutionally Limit Attorney Speech

In one of the first decisions construing the Debt Relief Agency provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the U.S. District Court for the Northern District of Texas has held that one specific provision of the statute is unconstitutional but denied relief on several other claims. No. 3:05-CV-2330-N, Susan B. Hersch vs. United States of America, et al (N.D. Tex. 7/26/06).

Attorney Susan B. Hersch of Dallas filed suit seeking a determination that attorneys did not fall within the definition of Debt Relief Agencies and that several provisions of BAPCPA were facially unconstitutional. On July 26, 2006, District Judge David C. Godbey released a 15 page Memorandum Opinion and Order. The Court’s ruling was a mixed bag for debtor’s attorneys. On the one hand, the Court found that Sec. 526(a)(4), which prohibits attorneys from advising clients to incur debt in contemplation of bankruptcy, was unconstitutional. However, the court rejected a challenge to the compelled disclosures required by Sec. 527 and held that attorneys were clearly within the scope of Debt Relief Agencies.

Attorneys Are Debt Relief Agencies

The Court found that the plain meaning of Sec. 101(4A) and 101(12A) provided that attorneys were included within the meaning of debt relief agencies. Debt relief agencies were defined as persons providing “bankruptcy assistance” in return for money, while bankruptcy assistance was defined as including “providing legal representation with respect to a case or proceeding under this title.” The court stated:

“A reading of the text for plain meaning indicates that the term ‘debt relief agency’ includes bankruptcy attorneys such as Hersch. Plain meaning is the preferred method for interpreting statutory language (citation omitted). Here, as only attorneys are authorized to provide legal advice and ‘providing legal advice’ is part of the definition of bankruptcy assistance, it seems clear that bankruptcy attorneys such as Hersch fit within the definition of ‘persons providing bankruptcy assistance.’ Attorneys also provide most of the other functions defined as ‘bankruptcy assistance.’”

It is hard to argue with the judge’s plain meaning analysis. While some courts have tortured the language into a conclusion that attorneys are not covered, In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005), this argument is probably a dead letter.

Section 526(a)(4) Impermissibly Limits Free Speech

Section 526(a)(4) was found unconstitutional under the First Amendment. However, this part of the opinion was a little procedurally confused. The plaintiff apparently did not plead that Sec. 526(a)(4) was unconstitutional. However, both parties briefed this issue extensively. As a result, the court ruled on the substantive issue subject to the plaintiff amending her pleadings to raise the issue which had already been decided.

Section 526(a)(4) states that a debt relief agency shall not “advise an assisted person . . . to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title.” The plaintiff argued that the statute should be subject to strict scrutiny, which is the standard generally applied to content based restrictions on speech. The government, on the other hand, argued that Sec. 526(a)(4) was an ethical restriction and should be reviewed under the more lenient standard contained in Gentile v. State Bar of Nevada, 501 U.S. 1030 (1991). The District Court noted that there was nothing in Sec. 526(a)(4) which would indicate that it was an ethical prohibition. However, it noted that even under the more lenient standard, that the statute was not constitutional.

Under the Gentile standard, the statute must (1) serve “the State’s legitimate interest in regulating the activity in question” and (2) “impose only narrow and necessary limitations on lawyer’s speech.” The Court noted that both the strict and lenient standards require that the restriction be narrowly tailored. Here, the court found that Sec. 526(a)(4) was not “narrow and necessary.” In this respect, the government was hoist on its own petard. The government argued that taking on additional debt “may” harm a debtor in some cases. As a result, the Court concluded that in other cases, it may not. The Court stated: “Section 526(a)(4), therefore, is overinclusive in at least two respects: (1) it prevents lawyers from advising clients to take lawful actions; and (2) it extends beyond abuse to prevent advice to take prudent actions.”

Section 527 Is Constitutional

Section 527 requires attorneys to give mandatory discloses to clients. The Plaintiff argued that this section unconstitutionally compelled speech. The court dismissed this argument finding that it was permissible to require the disclosure of accurate information. In this case, the court noted that even though the disclosures could be misleading in certain specific circumstances, the attorney was allowed to tailor the disclosure so long as it contained the required substance.

Final Thoughts

This appears to be a cogent and well-reasoned opinion. The court rejected weak arguments from both parties and cut to the heart of the issues. Judge Godbey was appointed by the current President Bush so that he cannot easily be dismissed as a liberal activist. This opinion is merely persuasive authority rather than binding precedent. However, until the circuit courts weigh in, Hersch is likely to be very persuasive.

The Empire Strikes Back: The Government Files Its Reply Brief in the Suit Over BAPCPA's Debt Relief Agency Provisions

I have previously written about the suit filed by the Connecticut Bar Assocation and the National Association of Consumer Bankruptcy Attorneys seeking to overturn the debt relief agency provisions of BAPCPA.

Blaming Attorneys

The United States has now responded to that suit and its defense of BAPCPA focuses largely upon the perceived ethical shortcomings of consumer debtors’ attorneys.

“In enacting the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress found that there was ‘abuse by attorneys and other professionals.’ (citation omitted). To correct this abuse, Congress included in BAPCPA ‘provisions strengthening professionalism standards for attorneys and others who assist consumer debtors with their bankruptcy cases.’”

Memorandum in Support of Motion to Dismiss and in Opposition to Plaintiff’s Motion for Preliminary Injunction, p.1, filed on June 30, 2006 in Case No. 3:06CV729 (U.S. District Court for the District of Connecticut).

The USA goes on to quote from the legislative history to BAPCPA:

“Looking for the source of this meteoric increase in bankruptcy filings, Congress determined that the bankruptcy system “ha[d] loopholes and incentives that allow[ed] and—sometimes-- even encourage[d] opportunistic personal filings and abuse (citation omitted) and that attorneys sometimes played a role in exploiting these “opportunities.”

Memorandum, pp. 8-9.

The U.S. Trustee program is quoted for the proposition that “[a]buse of the system is more widespread than many would have estimated.” Another witness testified that some debtors are told that they are consolidating their debts and do not know that they have filed bankruptcy, while the Fifth Circuit’s own Judge Edith Jones is cited for the statement that “many” bankruptcy lawyers never talk to their clients; another witness testified that bankruptcy practices are run like mills and that clients do not receive adequate disclosures. Finally, Bankruptcy Judge Carol Kenner is cited for the proposition that many debtors sign reaffirmation agreements without adequate disclosure.

The picture painted here is one of out of control lawyers causing a national bankruptcy crisis. It is disheartening that a Congress full of lawyers found it necessary to blame lawyers for the level of bankruptcy filings. Of course, neither the Justice Department nor the legislative history discuss the studies finding a direct correlation between the amount of consumer debt in the economy and the number of consumer bankruptcies filed.

Tempering the Language of BAPCPA

However, the news is not all bad. In several instances, the lawyers for the Justice Department argue that the provisions applicable to attorneys are not really as bad as they appear.

BAPCPA prevents attorneys from advising prospective to incur debt “in contemplation of” bankruptcy. The plaintiffs (the Connecticut Bar Association, the National Association of Consumer Bankruptcy Attorneys and others) argued that this gagged attorneys from advising their clients about how to beneficially structure their debts, such as refinancing a high interest loan. The USA contends that “in contemplation of” bankruptcy means because of filing bankruptcy. Under this construction, the only advice which would be prohibited would be to incur debt for the sole purpose of having it discharged in bankruptcy.

In another instance, BAPCPA requires attorneys to state, “We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code” in certain advertisements directed to the general public. While this requirement is patently offensive in any circumstance, the attorneys for the government try to minimize its effect, claiming that it only applies to advertisements directed to prospective consumer debtors. If the government is correct, then attorneys who represent debtors, creditors and trustees would not be required to place this disclaimer on their websites or other material generally promoting the firm. However, this is still a silly requirement. When an attorney says “We are a debt relief agency,” it suggests that he is affiliated with a government or non-profit agency.

The irony with the mandatory debt relief agency statement is that Congress identified a legitimate problem and then failed to fix it. There are some persons who advertise credit repair or debt consolidation when they mean bankruptcy. I would suspect that many of the people doing this are not lawyers and will not be affected by the statute. Congress could have fixed a legitimate problem by simply prohibiting deceptive advertisements. Instead, it mandated a silly slogan which does little to fix the problem while dissuading legitimate attorneys from representing consumer debtors.

Post-Script

The District Court heard oral argument on July 13 and has taken the matter under advisement.

NACBA and Connecticut Bar Association File Suit Over Debt Relief Agency Provisions of BAPCPA

One of the least popular aspect of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has been its provisions governing "debt relief agencies." It is fairly apparent that Congress believed that one cause for growing bankruptcy filings was unethical attorneys. Their answer was to define and regulate "debt relief agencies." The Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys have filed suit to invalidate BAPCPA's regulation of attorney debt relief agencies. More on that later, but first a little background on why this matters.

Who is a Debt Relief Agency?

Under the statute, a debt relief agency is a person who provides "bankruptcy assistance" to an "assisted person" in return for money or other valuable consideration. 11 U.S.C. Sec. 101(12A). "Bankruptcy assistance" consists of providing goods or services to an assisted person with the purpose of "providing information, advice, counsel, document preparation, or filing, or attendance at a creditors' meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title." 11 U.S.C. Sec. 101(4A). An "assisted person" is a person whose debts consist primarily of consumer debts and whose non-exempt property is worth less than $150,000. 11 U.S.C. Sec. 101(3). A debt relief agency does not include an officer, director or employee of a debt relief agency, a non-profit organization exempt from taxation, a creditor who is assisting a debt with restructuring a debt, a depository institution or an author acting in his capacity as author.

Put it together and what do you have? If you accept money for providing legal advice or representation to a person with primarily consumer debts and non-exempt property worth less than $150,000, then your firm is a "debt relief agency." Conversely, if you want to avoid being a debt relief agency, you must limit your practice to pro bono work or only accept clients with non-consumer debts.

An opinion released on the first day that BAPCPA took effect held that attorneys were not debt relief agencies. In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005). However, this opinion is almost certainly wishful thinking. When the statute defines bankruptcy assistance as providing legal representation, it is hard to conclude that lawyers are not implicated.

What Requirements Apply to Debt Relief Agencies?

Congress devoted three full sections to regulation of debt relief agencies. 11 U.S.C. Sec. 526-528. In my copy of the Code, these sections take up 3 1/2 pages of small text. Obviously, Congress wanted to make sure that there were a lot of standards applied to debt relief agencies. Among the more onerous requirements are the following:

(a) A debt relief agency may not make a statement in a document filed in a case that is untrue or misleading. 11 U.S.C. Sec. 526(a)(2). Why is this bad? It makes the attorney guaranty the accuracy of his client's statements. Thus, if the client fails to inform the attorney about his bank account in the Cayman Islands and the attorney files schedules which omit that asset, the attorney has just violated federal law. There does not appear to be any requirement that the false statement be made knowingly or that it be material. The mere existence of any false statement is a violation. To make things more egregious, the same requirement does not apply to creditor's lawyers. They can make false statements on behalf of their clients so long as they don't violate Rule 9011.

(b) A debt relief agency may not advise a client to incur more debt in contemplation of a bankruptcy. 11 U.S.C. Sec. 526(a)(4). Why is this bad? It limits the advice an attorney can give his client. Does the client have a worn out car that gets low mileage and costs a lot of money to repair? Getting a new full-efficient vehicle at a low interest rate might be a good idea. However, the attorney can't suggest that to his client or even give an answer when the client asks the question.

(c) No later than five days after the first date on which a debt relief agency provides any bankruptcy assistance to a client, the debt relief agency must execute a written contract with the client. 11 U.S.C. Sec. 528(a)(1). Why is this bad? It assumes that a client will know whether he wants to hire the attorney within five days from the first consultation. What happens if the attorney charges $50 for an initial consultation and the client decides not to file bankruptcy based on the attorneys advice? In this scenario, the attorney is clearly a debt relief agency because he charged money for providing bankruptcy advice. Therefore, he must execute a written contract with the assisted person within five days. He must do this even if no future services are contemplated. Another common scenario applies where an attorney gives an initial consultation without charge and does not hear back from the prospective client again for months. In this situation, the attorney is still required to execute a written contract because he provided bankruptcy assistance to an assisted person. So what is the attorney to do? The attorney must prepare a series of different contracts for each stage of the process. If nothing else, this is overregulation and needless creation of paperwork.

(d) If the attorney chooses to advertise bankruptcy assistance services or the benefits of bankruptcy to the general public, the attorney must use the words "We are a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code" or similar words in the advertisement. 11 U.S.C. Sec. 528(a)(3) and (b)(2)(B). Why is this bad? It mandates that specific, stilted language be used regardless of whether it is appropriate. The term "debt relief agency" is likely to mislead the public, since it suggests that the attorney is something other than an attorney. Governments have agencies. Insurance and advertising professionals have agencies. However, attorneys in private practice rarely, if ever, describe themselves as being with an agency. Thus, to comply with the law, an attorney must make a misleading statement and run the risk of discipline from his state bar association. Taking it further, if an attorney has a practice which includes representing both debtors and creditors, he must include specific language which gives the impression that he only represents debtors. In an even more extreme example, an attorney who limits his practice to representing creditors in bankruptcy would have to include the false statement "We help people file for bankruptcy" in his ad. Why is this? If the advertisement offers to help creditors in bankruptcy, it is still an ad for bankruptcy assistance services. Therefore, the required disclaimer must be made even if it is false.

To sum it all up, the provisions governing "debt relief agencies" impose nonsensical requirements which do little to assist the general public.

The Connecticut Suit

On May 11, 2006, The Connecticut Bar Association, the National Association of Consumer Bankruptcy Attorneys and several individual attorneys and law firms filed suit in United States District Court seeking to overturn the provisions of BAPCPA governing debt relief agencies. A copy of the petition can be found at http://nacba.com/files/main_page/complaint.pdf. The Plaintiffs argue alternatively that the debt relief agency provisions do not apply to attorneys or that, if they do, they are unconstitutional under the First and Fifth Amendments and the constitutional principles of federalism and separation of powers. The legal basis for their arguments is set out in a memorandum filed in support of their request for preliminary injunction. NACBA has considerately posted the document in Word format so that anyone who wants to make similar arguments can cut and paste. It is available on the NACBA home page. http://nacba.com.

The Commercial Law League, a leading creditors' rights organization, has filed an amicus brief in support of the plaintiffs.