Debt Relief Agencies - Bankruptcy attorneys are included in the definition "debt relief agency" and are prohibited from advising clients to incur more debt when the "impelling reason" for the advice is to "load up" on debt then discharge it through the bankruptcy proceeding. Being debt relief agents, the imposition of the Code's advertising disclosure is reasonable related to the government's interest in preventing consumer deception and fraud and, therefore, Constitutional
Opinion By: Sotomayor (joined by Roberts, Stevens, Kennedy, Ginsburg, Greyer and Alito)
(Scalia joined except for n. 3 and Thomas joined except for Part III-C. Scalia and Thomas filed opinions concurring in part and concurring in the judgment)
The Plaintiffs in this litigation, the law firm of Milavretz, Gallop & Milavetz, P.A.; the firm's president, Robert J. Milavetz; a bankruptcy attorney at the firm, Barbara Nilva Nevin, and two of the firm's clients, filed a preenforcement suit in Federal District Court seeking declaratory Relief with respect to the Bankruptcy Abuse Prevention and Consumer Protection Act's ("BAPCPA") debt relief agency provisions. Plaintiff's asked the Court to rule that these debt relief provisions do not apply to attorneys practicing bankruptcy law. At the District Court level, the Court agreed that the definition of debt relief agent did not include attorneys.
The Court of Appeals for the Eight Circuit affirmed in part and reversed in part. The Court relying upon the Act's plain language unanimously rejected the District Court's ruling that attorneys are not debt relief agents. The Court of Appeals also disagreed that § 528 was unconstitutional concluding that the disclosures are intended to prevent consumer deception and are reasonable related to that interest. The Court did agree that §526 (a)(4) was overly broad, prohibiting a debt relief agent from advising an assisted person to incur any additional debt when that assisted person is contemplating bankruptcy. The majority of the Court held that § 526(a)(4) could not withstand either Strict or intermediate scrutiny
The Supreme Court granted certiorari affirmed in part, reversed in part, and remanded.
The Court agreed that with the Eight Circuit that the definition of debt relief agents under § 101(12A) includes attorneys that provide bankruptcy assistance to assisted persons. The Supreme Court disagreed with the Eight Circuit that §526(a)(4) was substantially overbroad in restricting content-based attorney-client communications. The Court held that the only advice prohibited by the statute is advice to incur more debt "because the debtor is filing in bankruptcy." The Court stated that the type of advice that would be prohibited would be advice to "load up" on debt with the expectation of discharging the debt in a bankruptcy. The Court did add that advice to refinance at a lower mortgage interest rate or by a reliable car would be permissible because the promise of enhanced financial prospects is the "impelling reason". Lastly, the Court held that § 528, requiring attorneys that qualify as debt relief agents identify themselves as such in their advertisements was reasonably related to the government's interest in preventing consumer deception and not a violation of an attorney's First Amendment interest in not providing the required information. Any restriction on this type of commercial speech is minimal.