Supreme Court Restricts Bankruptcy Attorneys Ability to Advise Clients

The US Supreme Court has ruled that bankruptcy attorneys can no longer advise clients to incur additional debt because they are contemplating bankruptcy. The controversy arose out of a 2005 law that bars debt relief agencies from advising clients to incur more debt if they are intending to file for bankruptcy. Such advice could theoretically evidence an attempt to utilize bankruptcy with fraudulent intent.

The Court made clear they are making a narrow interpretation of the statute. The majority opinion states that the statute bars lawyers and other debt relief agencies from advising clients to incur more debt because they are filing for bankruptcy, rather than suggesting they incur more debt for a valid purpose. 

The lower courts, along with bankruptcy attorneys, are concerned the decision will limit their ability to advise clients. The 8th Circuit had struck down the law on free speech grounds, saying that bankruptcy attorneys would not be able to advise out of work clients to purchase a car to get to work, or to refinance their mortgage at a lower rate.

Supreme Court Rules 2005 Law Applies to Lawyer Bankruptcy Advice | ABA Law Journal

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