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Parts of BAPCPA Unconstitutional

posted by Bob Lawless

Among the many changes in the 2005 amendments to the bankruptcy law (known as the Bankruptcy Abuse Prevention and Consumer Protection Act or "BAPCPA") were provisions designed to restrict what bankruptcy attorneys had to say to clients and what they could not say to clients. Yesterday, a federal judge in Dallas found one of these provisions unconstitutional but upheld other parts of the law. The case is Hersch v. United States, No. 3:05-CV-2330-N (N.D. Tex., July 26, 2006), and the plaintiff was represented by Howard Marc Spector. The opinion is available here.

BAPCPA lumps bankruptcy attorneys in with all debt relief agencies and then states that no debt relief agency can advise a debtor to incur more debt before filing bankrutpcy. Not surprisingly, Judge David Godbey ruled this provision unconstitutionally restricts speech. I'm no constitutional scholar, but one cannot imagine a more direct regulation of speech (maybe I just lack imagination). Other provisions of BAPCPA require bankruptcy attorneys to make lengthy disclosures to all clients. Despite cases holding the government cannot compel business to make speech, Judge Godbey found this provision constitutional. He analogized to compelled disclosures doctors had to make before performing abortions and that the Supreme Court upheld in the Casey decision.

There is a lot more I would like to say about this case, but I have to run. Blog readers can breathe a sigh of relief. As an experiment, I have turned on the comments for this posting. My fellow bloggers also may have more to add.

Comments

I completely agree with the ruling (and your views) on 526(a)(4).

However, I can't get my head around your proposition that "government cannot compel business to make speech" (and by the way, it's not clear to me from the Hersch decision that there are cases supporting it, although I didn't take the time to read all the cases cited in Hersch). If that's the constitutional standard, then why are FDA required disclosures about drugs OK? Nutritional information on food packaging? SEC filings? Insurance industry forms??

And I'm having trouble thinking of a constitutional reason why "professionals" who want to sell advice should be treated differently for these purposes from widget companies that want to sell shares. Am I missing something?

In my consumer bankruptcy practice in Atlanta, the BAPCA disclosures are basically boilerplate documents that I give to my clients or post on my web site. They are equivalent to the boilerplate disclosures one sees at a real estate closing.
As attorneys, we have an ethical obligation to offer advice untainted by self-serving motivation. The disclosure requirement, like the credit counseling requirement simply adds more cost and complexity to the process.
The judges and the U.S. Trustee in my district have explicitly stated that they have far more important tasks to worry about than investigating disclosure violations. So, for me, the disclosures are there if anyone wants to read them, but basically they are a non-factor in the case evaluation process.
Jonathan Ginsberg
Ginsberg Law Offices

I'm glad a judge has finally made a decision on some of the garbage in the Act. I have spoken with practitioners on both sides, as well as Bankruptcy Judges and the verdict is fairly uniform. It's a bad law. And that is before you start the policy debate.

The required disclosures do not, however, bother me. One problem is, however, that, as Mr. Ginsberg points out, the disclosures are boilerplate. What is meant to provide information has already been relegated to being stragglers in a huge stack of papers which must be signed. Coupled with the fact that many of those seeking bankruptcy protection are functionally illiterate, what Congress has accomplished is the killing of innocent trees.

The problem with the mandated disclosures is that they are not legally correct. That is a major difference between an FDA mandated disclosure and the DRA disclosures. Presumably, an FDA mandated disclosure is factually correct based upon the science. This is not the case with the disclosures mandated by the statute. Also, you are only required to give them to "Assisted Persons." FDA disclosures go to everyone. This means that you are required to disseminate factually incorrect information to some clients but need not give it to others.

Abandoment of Issue/ Sec. 528
In footnote two, the court noted that “Hersh [made] no effort to refute the Government’s argument that her section 528 claims present no basis for relief. Accordingly, the Court grants the Government’s motion...”
Is this a ruling on the merits of the argument?

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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