Eighth Circuit Rules that Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Violates Attorneys’ Free Speech

On September 4, 2008, the Eighth Circuit ruled in Milavetz, Gallop & Milavetz v. U.S. that a provision of the Bankruptcy Prevention and Consumer Protection Act of 2005, 11 U.S.C. sec. 526(a)(4), is unconstitutionally overbroad as applied to attorneys who are also “debt relief agencies.”  Here is an excerpt from the opinion:

Plaintiffs assert that the prohibition against advising an assisted person . . . to incur more debt in contemplation of bankruptcy violates the First Amendment. The parties disagree as to the level of scrutiny we apply to the constitutional analysis of this limitation on speech.

. . .

[R]egardless of whether the government’s interest in prohibiting the speech was legitimate (Gentile standard) or compelling (strict scrutiny standard), [sec.] 526(a)(4) is unconstitutionally overbroad as applied to attorneys falling within the definition of debt relief agencies because it is not narrowly tailored, nor narrowly and necessarily limited, to restrict only that speech that the government has an interest in restricting. Instead, [sec.] 526(a)(4) prohibits attorneys classified as debt relief agencies from advising any assisted person to incur any additional debt in contemplation of bankruptcy; this prohibition would include advice constituting prudent prebankruptcy planning that is not an attempt to circumvent, abuse, or undermine the bankruptcy laws.  Section 526(a)(4), as written, prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited by the Bankruptcy Code or other applicable law.

Importantly, the questioned provision, sec. 526(a)(4), does not apply to 501(c)(3) debt relief agencies because of a specific exemption at 11 U.S.C. sec. 101(12A)(B).For the entire text of the opinion, see Milavetz, Gallop & Milavetz, P.A. v. United States, No. 07-2405 (8th Cir.) (September 4, 2008).

DAB