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Legislating Confusion

posted by Angie Littwin

Consumer bankruptcy attorneys just can’t win.  Among the most controversial changes the Bankruptcy Abuse Prevention and Consumer Protection Act made to the Bankruptcy Code are the provisions regulating the relationship between consumer debtor attorneys and their clients.  Collectively, sections 526, 527, and 528 of 11 U.S.C. impose a number requirements on consumer debtor attorneys, restricting the advice they can give, compelling them to make disclosures not required of other attorneys, and requiring them to advertise themselves as “debt relief agencies.”  The statute refers to consumer bankruptcy attorneys as “debt relief agencies” throughout. See, e.g., 11 U.S.C. § 101 (12A).  Debtor attorneys are not exactly overjoyed about the changes and have been challenging these provisions since they went into effect, arguing, among other things, that “they restrict attorney advertising in a manner inconsistent with the First Amendment.

So imagine my surprise when I came across the following warning on a Federal Trade Commission consumer-education web page: “BUYER BEWARE! ADS PROMISING ‘DEBT RELIEF’ ACTUALLY MAY BE OFFERING BANKRUPTCY.” 

The warning appears in bold print as the heading of a color-highlighted of a text box, many of which appear throughout the web page.  Other text boxes include warnings to consumers to “Avoid Advance Fee Loan Scams” and tips on “What to Do If You’re a Victim of Identity Theft.” The “debt relief” warning is at the bottom of the page, but it is also the only one in all capital letters.

The text in the box proceeds to inform consumers that, “As you try to take control of your debt, be on the lookout for advertisements that offer quick fixes. While ads pitch the promise of debt relief, they rarely mention that this relief comes in the form of bankruptcy. Because bankruptcy stays on your credit report for 10 years and hinders your ability to get credit, it’s important to ask for details before agreeing to any debt-relief services.”

While the FTC is probably not targeting bankruptcy attorneys, but rather services that file bankruptcy papers without offering legal help, the FTC and Congress seem to be giving opposite advice.  The FTC is warning consumers away from a label that the Bankruptcy Code now requires the attorneys who want to represent them to adopt. 

Was Congress aware that the label “debt relief agency” had such negative connotations that the FTC had included a warning about it in its consumer-education materials?  I’m not sure.  But whether intentional or not, the end result is one more layer of confusion for consumers trying to navigate the new world of bankruptcy reform.


The warning on the FTC page regarding 'debt relief agencies' has been there for quite some time, probably 2 years at least, so it was there LONG before the BARF bill was passed last year. The FTC needs to update it's warnings to differentiate between actual bankruptcy attorneys and the scam so-called 'debt relief' companies that are everywhere.

While one appreciates the irony, the danger of "bait and switch" with which the FTC was concerned is mitigated by the fact that Bankruptcy Code 528 also requires that consumer bankruptcy advertising state that the attorney is providing relief under the bankruptcy code. Perhaps equally ironic is the fact that, prior to BAPCPA, the Standing Committee on Professional Responsibility and Conduct of the State Bar of California ruled (in Formal Opinion 2004-167) that it would be unethical for a lawyer to advertise himself as "Workers' Compensation Relief Center" because such advertising would be misleading in that it implied an association with a governmental agency or instrumentality. That conclusion would be even more likely for the phrase "debt relief agency", but, under Bankruptcy Code 526(d)(1), BAPCPA's advertising requirements would seem to preempt such a holding.

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