On Tuesday, the Supreme Court heard two cases that could significantly impact bankruptcy law. Besides hearing arguments about the dischargeability of student loan debt in bankruptcy, the U.S. Supreme Court heard a second case challenging the validity of provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). One rule prohibits lawyers from recommending that assisted persons, who are individuals with primarirly non-exempt consumer debts, take on additional debt. Another requires that attorneys who offer bankruptcy advice must advertise as debt relief agencies.
A Minnesota law firm challenged the provisions as violating lawyers' First Amendment rights, ethical duties to provide legal advice, and responsibility to not provide misleading advertising. The firm's stance is that 11 U.S.C. section 526(a)(4) is overbroad and wrongfully prevents attorneys from providing sound legal advice to clients. For instance, the law, which prohibits advising assisted persons to incur more debt, may prevent an attorney from advising a potential bankruptcy filer to sell his overly expensive home and rent an apartment because the lease would be additional debt.
The firm also argued that Congress did not intend for 11 U.S.C. section 528, which requires that debt relief agencies disclose in advertisements that they are debt relief agencies, to apply to bankruptcy attorneys because Congress designed the law to regulate behavior by non-attorney bankruptcy providers. The firm's attorney made the point that If Congress wanted the law to apply to attorneys the law's language would explicitly include attorneys.
The justices appeared to view section 526(a)(4) unfavorably and Justice Scalia even repeatedly referred to it as "a stupid law." On the other hand, a few justices treated the firm's position on section 528 skeptically. The Supreme Court will likely hand down a decision towards the beginning of 2010.
