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March 8, 2010

Milavetz, Gallop & Milavetz v. United States 2010 U.S. LEXIS 2206

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United States Supreme Court holds the “Debt Relief Agency” provisions of the Bankruptcy Code apply to debtors’ attorneys.

The Milavetz firm sued the government seeking declaratory relief that, as attorneys, it was not bound by certain provisions of the “Bankruptcy Abuse Prevention & Consumer Protection Act of 2005” (BAPCPA).

The act amended the Bankruptcy Code to define a class of bankruptcy professionals termed “Debt Relief Agencies,” to include any person who provides bankruptcy assistance to an “assisted person” for payment, or who is a bankruptcy petition preparer.  It prohibits a professional from advising an assisted person to increase his or her debt in contemplation of filing for bankruptcy.  It requires debt relief agencies to disclose in advertisements that their services may involve bankruptcy relief and to identify themselves as a debt relief agency.

The Supreme Court held that under the statute law firms are “debt relief agencies.” The Court noted that by definition certain of the activities contained within BAPCPA, including the preparation of bankruptcy petitions, are performed by attorneys.

The statute’s prohibition against advising an assisted person to incur more debt is not impermissibly vague, and applies to attorneys.

Although unjustified or unduly burdensome disclosure requirements can offend the First Amendment, the BAPCPA disclosure requirements are reasonably related to a state interest in preventing consumer deception.  Thus, they are valid as applied to the Milavetz firm.

Comment: Political considerations related to bankruptcy have weakened traditional aspects of the attorney-client relationship.


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