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Restrictions on Attorney Speech Held Unconstitutional

posted by Katie Porter

On December 7, 2006, Chief Judge James Rosenbaum of the District of Minnesota issued an opinion in In re Milavetz (05-CV-2626). The case was a constitutional challenges to sections 526, 527, and 528 (the "debt relief agency" provisions) of the Bankruptcy Code brought by law firms who represent consumer bankruptcy clients. The court denied the government's motion to dismiss for failure to state a claim and held that the debt relief agency sections of BAPCPA unconstitutionally infringe on attorneys' First Amendment Rights.

A few highlights from the opinion: 1) The court said that 526(a)(4), which prohibits attorneys from advising clients to take on debt in advance of a bankruptcy, is content-based regulation of attorney speech. The government argued that one of the compelling interests that justified the speech restriction was "the protection of creditors." In rejecting that argument, the court not only ruled that a lawyer's duty is to his client and not to creditors but also noted that creditors are "scarely without their own resources" and "may have contributed to a potential-bankrupt's straits by making credit easy to obtain."  2) As an apparent alternative basis for its holding, the court ruled that attorneys are not "debt relief agencies" as the term is defined and used in the Bankruptcy Code. Sections 526, 527, and 528 were therefore held inapplicable to attorneys. 

My guess is that the Department of Justice will appeal, and my guess is that they will lose at the appellate level. Stake out your position in a comment below, and we'll revisit the issue soon enough, I imagine.

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