New Supreme Court Ruling: Upholds Reform Law, Relaxes Lawyer Speech Rules

14 Mar New Supreme Court Ruling: Upholds Reform Law, Relaxes Lawyer Speech Rules

In Milavetz v. United States, 2010 WL 757616 (U.S. March 8, 2010), a unanimous U.S. Supreme Court upheld portions of the 2005 Bankruptcy Reform Act which had been challenged on constitutional grounds. Upheld were requirements that bankruptcy lawyers identify themselves as “debt relief agencies,” and that bankruptcy lawyers cannot advise clients to “load up” on new debts for the specific purpose of abusing the bankruptcy laws.
Opponents of the new law had feared that the courts would forbid bankruptcy lawyers from discussing, in any manner at all, the possibility that a client should incur new debt at the time of considering bankruptcy. For example, a potential bankruptcy client with a home mortgage having an excessive interest rate might be well advised to “incur a new debt” by refinancing into a mortgage with a low interest rate; or a potential bankruptcy client with a worn out, unreliable car, who barely makes it into work each morning, might be well advised to “incur a new debt” by financing a modestly pricednew car, to avoid losing his job over being absent from work in the event the worn out car breaks down; or a potential bankruptcy client might be well advised to “incur a new debt” byrolling high interest credit card debts into a low interest consolidation loan.
In the first and third examples above, bankruptcy could possibly be avoided in the event that incurring new debt improved the client’s cash flow sufficiently. The Supreme Court held that the 2005 bankruptcy lawdid not intend to prevent lawyers from advising bankruptcy clients about non-abusive debt alternatives. It was permissible for lawyers to discuss mortgage refinancing, consolidation loans, or new car purchases with potential bankruptcy clients. What the 2005 bankruptcy law forbade, according to the court,was advising clients to incur more debt intending to discharge the new debt in a bankruptcy.
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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.

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