Legal Challenges to the Client Communication Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 Page: 4 of 5
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11 U.S.C. 526(a)(4): Restrictions on Advice to Clients. BAPCPA
prohibits a debt relief agency from advising assisted persons either to incur additional debt
in contemplation of filing for bankruptcy or to pay an attorney or bankruptcy petition
preparer fees in exchange for bankruptcy services.19
Attorney plaintiffs have had success in challenging the constitutionality of this
provision. Four U.S. district courts have held that the provision violates the First
Amendment's guarantee of freedom of speech.20 These courts all concluded that the
provision is too broad in scope because it restricts more speech than is necessary to
prevent debtors from being able to manipulate the system. Therefore, the courts reasoned,
this restriction prevents attorneys from being able to best protect their clients. The U.S.
District Court for the Northern District of Texas, for example, pointed out that a
bankruptcy attorney may have a legitimate, non-abusive reason to counsel a client to incur
additional debt. The court noted that a client might benefit from refinancing a mortgage
at a lower rate in order to prevent bankruptcy or from taking out a loan on a car in order
to be able to commute to a job and earn income.21 Other legitimate reasons to incur
additional debt, noted by the U.S. District Court for the District of Connecticut, include
preventing wage garnishment or home foreclosure and borrowing money from family or
friends in order to hire an attorney or pay a filing fee.22
Several courts have also found that the group of individuals covered by the provision
is too narrowly defined. Highlighting the fact that the definition of debt relief agency
excludes many other entities that advise debtors, such as nonprofit organizations, the U.S.
District Court for Oregon observed that nothing in BAPCPA prevents nonprofits and
other groups from advising debtors to incur additional debt.23
11 U.S.C. 527: Required Disclosures of Information on the Bankruptcy
Process. BAPCPA compels debt relief agencies to notify assisted persons of the
" the costs and benefits of proceeding under chapters 7, 11, 12, and 13 of
the bankruptcy code;
" the types of services available from credit counseling agencies;
" the requirement that the assisted person provide only complete, accurate,
and truthful information;
" the requirement that all assets and liabilities be disclosed;
" the requirement that an assisted person be able to choose to hire an
attorney, hire a bankruptcy petition preparer, or represent himself or
herself, but that only attorneys and not petition preparers can render legal
19 11 U.S.C. 526(a)(4) (2005).
20 Hersh, 347 B.R. at 2; Olsen, 350 B.R. at 916; Zelotes, 352 B.R. It 24-25; Milavetz, 355 B.R.
21 Hersh, 347 B.R. at 24.
22 Zelotes, 352 B.R. at 24.
23 Olsen, 350 B.R. at 916.
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Legal Challenges to the Client Communication Provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, report, June 27, 2007; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc817804/m1/4/: accessed November 20, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.