The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is widely considered to be vague and poorly written. Courts have struggled interpreting its language, and on Monday the Supreme Court interjected some, but not total, clarity in an opinion that both burdened and unburdened bankruptcy attorneys' practices. The Court unanimously ruled that bankruptcy attorneys must identify themselves as "debt relief agencies" in advertisements. It also held that they may advise clients to take on additional debt as long as the attorneys do not inform clients to load up on debt in anticipation of filing bankruptcy. Justice Sonia Sotomayor wrote the majority opinion in Milavetz v. United States.
The BAPCPA had attempted to clamp down on attorneys who were providing clients with ways to exploit impending bankruptcy. Read broadly, the law the Act instituted seemed to prohibit bankruptcy attorneys from advising clients to take on any debt, even necessary expenses such as signing an apartment lease or acquiring a car for transportation. Many attorneys complained that such an interpretation hamstrung their ability to provide effective counsel. In the case that reached the Supreme Court, a Minnesota law firm, Milavetz, Gallop & Milavetz, argued that the rule violated the First Amendment by restricting attorney-client communication.
Sotomayor did not agree that the rule violated the First Amendment because attorneys have no right to affirmatively advise clients to commit abusive pre-filing conduct. However, her opinion indicated that the law only applies when the "impetus for the advice to incur more debt is the expectation of filing for bankruptcy and obtaining the attendant relief." In other words, attorneys can advise clients to rent an apartment or make a reasonable car purchase so long as the attorney does not expect or intend that the obligations will be excused by bankruptcy.
Sotomayor's standard does not draw a bright-line rule, so attorneys will have to carefully consider whether their advice adheres to the language in the Milavetz case.
