Federal Court Strikes Down Bankruptcy Code Provisions

29 Sep Federal Court Strikes Down Bankruptcy Code Provisions

After waiting more than two years for a decision, U.S. District Judge Droney of Connecticut ruled on September 9, 2008 that attorneys must be free to advise clients regarding their finances free from governmental interference. In a further move, the judge also agreed that certain of the Bankruptcy Code provisions enacted in 2005 are overly broad and granted a Preliminary Injunction preventing the government from enforcing some them.

Mainly at issue was the label “Debt Relief Agent”. Under the Bankruptcy Code, the term covers any person who provides paid help or advice in connection with any bankruptcy case. As such, it includes any attorney who renders any service even remotely dealing with bankruptcy. This could be a divorce attorney, a real estate attorney, or even lawyers who represent creditors. Debt Relief Agents are NOT allowed to render some advice, but must provide certain language in every advertisement and must provide certain other disclosures which may not be relevant to the case at hand.

What did the Court rule? The Court specifically found that the definition of Debt Relief Agent was sufficiently broad to cover more than just attorneys who practice bankruptcy law. He issued an Preliminary Injunction prohibiting the government from interfereing with the attorney-client relationship. He also prohibited the government from pursing lawyers who do not regularly represent consumer debtors in bankruptcy for failure to provide certain disclosures or use certain language in the advertisements.

What does this mean for consumers? This case is another decision in a line of cases upholding the attorney’s right to freely advise the client appropriately. This includes the advice to incur new debt prior to filing bankruptcy, but not to suggest such debt be incurred fraudulently. And if you are going to a lawyer for any other reason than to file for bankruptcy, neither you nor the lawyer need to worry about any of these issues.

“ConnecticutGene Melchionne is a bankruptcy lawyer covering the entire State of Connecticut. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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