Bankruptcy/Debtor-Creditor Rights Blog

SUPREME COURT HOLDS THAT ATTORNEYS ARE “DEBT RELIEF AGENCIES”

Posted March 12, 2010

Author: Chris A. McNulty

The United States Supreme Court handed down its decision in Milavetz, Gallop & Milavetz, P.A., et. al. v. United States this week, concluding that attorneys are included in the term “debt relief agencies.”  As defined in 11 USC §101(12A), a “debt relief agency” is “any person who provides any bankruptcy assistance to an assisted person.”  The Court stated that the term “bankruptcy assistance” encompasses several services commonly performed by attorneys, and therefore attorneys are debt relief agencies.  An “assisted person” is someone with limited nonexempt property whose debts consist primarily of consumer debts.                                                                                                                

This holding means that attorneys who provide bankruptcy assistance to assisted persons are prohibited from advising their clients to incur more debt in contemplation of filing for bankruptcy.  More specifically, they are prohibited from advising an assisted person to incur more debt when the impelling reason for the advice is the anticipation of bankruptcy.  The Court was quick to point out, however, that attorneys are still allowed to speak “fully and candidly about the incurrence of debt in contemplation of filing a bankruptcy case” as long as they avoid instructing or encouraging assisted persons to take on more debt in that circumstance.

This holding also requires attorneys providing bankruptcy assistance to assisted persons to disclose in their advertisements for certain services that the services are with respect to or may involve bankruptcy relief and to identify themselves as debt relief agencies.  The Court stated that the purpose of the disclosures is to “combat the problem of inherently misleading commercial advertisements—specifically, the promise of debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs.”  The Court went on to note that the disclosures only require “an accurate statement identifying the advertiser’s legal status and the character of the assistance provided” and they do not prevent attorneys “from conveying any additional information.”

« BACK