ARRANGE AN APPOINTMENT
Have you provided “bankruptcy assistance”1 to an “assisted person”2 in return for the payment of money or other valuable consideration? If the answer is yes then, you might be a “debt relief agency.” 3
Along with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) came the newly added term “debt relief agency.” Although you may not have known it, if you fall within the definition of a “debt relief agency,” BAPCPA restricts some of your actions and requires you to do others. For example, 11 U.S.C. § 526(a)(4) bars a debt relief agency from advising a client “to incur more debt in contemplation” of a bankruptcy filing, while 11 U.S.C. §§ 528(a)(4) and (b)(2) require debt relief agencies to include a disclosure in their bankruptcy related advertisements directed to the general public declaring: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”
Until recently, the question of whether attorneys fall within the definition of a debt relief agency and, if so, whether the restrictions and requirements, as applied to attorneys, were constitutional had not been addressed by a Circuit Court of Appeals. In Milavetz, Gallop & Milavetz, P.A. v. United States of America, -- F3d. --, 2008 WL 4068448 (8th Cir.), a bankruptcy law firm and two of the firm’s bankruptcy clients brought suit against the United States requesting a declaratory judgment that the attorneys did not fall within the definition of “debt relief agency” and alternatively, if the court determined that attorneys did fall within the definition of “debt relief agency”, then § 526(a)(4) and 528(a)(4) and (b)(2), are unconstitutional as applied to attorneys.
In addressing the initial issue of whether attorneys fall within the definition of “debt relief agency,” the Milavetz Court held that attorneys who provide “bankruptcy assistance” to “assisted persons” are “debt relief agencies.” The Court reasoned that because attorneys were not specifically excluded from the definition of “debt relief agencies,” interpreting the definition of “debt relief agency” to exclude attorneys would be contrary to Congress’s intent. Id. at 4.
Although the Milavetz Court concluded that attorneys can be “debt relief agencies,” the Court held that the restrictions set forth in 11 U.S.C. §526(a)(4) were substantially overbroad and unconstitutional as applied to attorneys. Id. at 5. The Milavetz Court found that the prohibition from advising any assisted person from incurring additional debt, contained in 11 U.S.C. §526(a)(4), unconstitutionally prohibits attorneys from giving prudent pre-bankruptcy planning advice. Id. The Court went on to describe certain situations where it would likely be in the assisted person's, and even the creditors' best interest for the assisted person to incur additional debt in contemplation of bankruptcy. For example, it may be in the assisted person's best interest to refinance a home mortgage in contemplation of bankruptcy to lower the mortgage payments in order to free up funds to pay off other debts and avoid the need for filing bankruptcy all together. Id. Further, it may be in the client's best interest to incur additional debt to purchase a reliable automobile before filing for bankruptcy, so that the debtor will have dependable transportation to travel to and from work, which will likely be necessary to maintain the debtor's payments in [a chapter 13] bankruptcy. Id. at 6.
With regard to the required disclosures set forth in 11 U.S.C. §§ 528(a)(4) and (b)(2), the Milavetz Court held them to be constitutional. The Court found that although less intrusive means may be conceivable to prevent deceptive advertising, § 528’s disclosure requirements are reasonably related to the government's interest in protecting consumer debtors from deceptive advertising, and thus the section passes constitutional muster. Id.
In summary, if you are a bankruptcy attorney, you may be a “debt relief agency.” Accordingly, you should be aware of the restrictions and requirement set forth in BAPCPA as well as the case law interpreting same.
