The Supreme Court has agreed to take on a case that addresses the constitutionality of a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that restricts “debt relief agencies,” including lawyers, from advising their clients to take on additional debt before filing for bankruptcy, InsideARM reports (“Supreme Court Agrees to Hear Challenge to Bankruptcy Reform Law Provision,” June 9, 2009).

The section of the U.S. bankruptcy code in question was ruled to be in violation of the First Amendment by the U.S. appeals court in St. Louis in 2007 because the law “prevented lawyers from fulfilling their duty to clients to give them appropriate and beneficial financial advice.”

The court ruled that the law was passed as an attempt by Congress to stem lawyers’ abuse of the bankruptcy system but that language was too broad.

In fact, the court said, some clients might even benefit from their lawyers’ freedom to advise taking on certain types of debt, including a mortgage refinance, which can free up funds to help a consumer pay off other debt before filing for bankruptcy.

The language “would include advice constituting prudent pre-bankruptcy planning that is not an attempt to circumvent, abuse, or undermine the bankruptcy laws,” the court wrote (“U.S. Top Court to Decide Bankruptcy Advice Case,” Reuters, June 8, 2009).

In the Supreme Court case, which will be heard in October, the Obama administration is expected to argue that this provision of the Act can be viewed narrowly enough to allow debt relief agencies to advise their clients in anyway they see fit.

Find information on debt relief and other debt management options at ThinkDebtRelief.com

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