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United States Supreme Court Determines that Attorneys are Debt Relief Agencies and More…

Published on Mar 10, 2010 at 3:41 pm in General Blogs.

In 2005, the Bankruptcy Code was overhauled by Congress in what is known as the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). BAPCPA brought with it many changes, aiming to make it more difficult for people to eliminate debt entirely in a Chapter 7 case and forcing many debtors to pay back a portion of their debt in a Chapter 13 reorganization. One of the big changes BAPCPA brought about was the classification that attorneys offering bankruptcy assistance for a fee be considered “Debt Relief Agencies”. In the case of Milavetz v. United States, The Supreme Court has held that Attorneys who provide bankruptcy assistance are in fact debt relief agencies. As a result of this classification, bankruptcy attorneys are required to disclose in their advertising that they are a debt relief agency helping people to file bankruptcy under the bankruptcy code. In addition, this classification also restricts the ability of a debt relief agent to advise their clients to incur more debt in contemplation of filing bankruptcy. The Supreme Court has held that in practice, the type of advice that is restricted in bankruptcy will generally consist of advice to “load up” on debt with the expectation of obtaining its discharge through the bankruptcy.

There are times when a client, prior to filing bankruptcy, is in need of a new vehicle. Generally, advice to a client to purchase a new vehicle before filing, with the intent of keeping the vehicle for transport and household reasons, would not be considered illegal under the Supreme Court’s decision.

This decision gives relief to countless bankruptcy attorneys that advising a debtor to incur debt prior to filing is legal, so long as there is a legitimate and valid basis for the advice.

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