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BAPCPA Gag Rule Found Constitutional by Fifth Circuit

posted by Tara Twomey
Rarely do we get two important consumer bankruptcy decisions from the circuit courts in the same week, but it appears this is no ordinary week.  As noted previously, the Seventh Circuit this week decided an important means test issue, and yesterday, the Fifth Circuit Court of Appeals in In re Hersh, No. 07-10226 (5th Cir. Dec. 18, 2008) rendered a decision in a case challenging the constitutionality of sections 526(a)(4) and 527(b).  These two sections are part of the "debt relief agency" provisions added by BAPCPA.

After finding that bankruptcy attorneys qualify as ‘debt relief agencies’ under 11 U.S.C. § 101(12A), the court affirmed the district court’s holding that § 527(b), which compels that certain information regarding bankruptcy proceedings be conveyed by the “debt relief agency” to “assisted persons,” does not violate the First Amendment. The court reversed the district court’s finding that § 526(a)(4), which prohibits an attorney from advising his or her client to incur debt in contemplation of filing for bankruptcy, is facially unconstitutional.

In finding that § 526(a)(4) does not offend the First Amendment, the court applied the doctrine of constitutional avoidance to narrowly interpret the provision such that it would fall within constitutional parameters. Thus, the court construed the phrase “in contemplation of” to suggest that the prohibition is coupled with an implicit requirement that the speech only be prohibited when it constitutes an intent to abuse the bankruptcy system. Here, the court deviated from the Eighth Circuit majority opinion in Milavetz,Gallop & Milavetz, P.A., v. United States, 541 F.3d 785 (8th Cir. 2008), which held that the provision was facially unconstitutional.


Could you provide an English translation?

The Fifth Circuit made an unreasonable and idiotic ruling? I, for one, am shocked.

Thank god the 5th Circuit is here to save us from the "tyranny of literalness." Otherwise, the court might have had to admit what everyone working in the field knows: that BAPCPA was drafted by lobbyist hacks, not Congress, and, as a result, as one of the most poorly drafted statutes out there, it is certainly capable of being unconstitutionally overbroad.

I'll be interested to see how trustees and judges in the 5th determine whether future instances of such attorney speech is or is not given "in contemplation of" "abusing" the bankruptcy system. My guess is, if the judge or trustee is pro-creditor by habit, they'll magically find that debtors and their attorneys were contemplating "abuse."

Man, that sucks! The 5th is ours.

For jj: The BK laws passed in 05 had a provision in there that prohibited attorneys from advising their clients in a certain way. ie. to advise clients to buy a newer more reliable vehicle before they file bk because afterwards getting credit would be harder to get. No harm would come to the new car creditor in bk and in chapter 13 bankruptcy would actually be beneficial to all unsecured creditors because the debtor would have a more relievable vehicle to get to and from work. Debtor works, unsecured debts get paid in at a higher percentage. The old car creditor would be stuck with a surrendered vehicle probably backwards in value (the reason for all of the lobbing effort by the car creditors lobby).

THE FIGHT: (was and is) that advise by an attorney to his or her client is protected speech via 1st amendment (right to free speech) and (attorney client privilege) The 7th and 5th court of federal appeals has said in essence that the bk "provision" did not violate the 1st amendment to the constitution…… “too much”… to me it’s the “1st Amendment” for a reason.

I am writing a law review article on this issue (that has obviously been upset by this opinion). Is there anyone who has access to information on the 9th Circuit's review of 526(a)4? I understand it is sitting before them. Thanks!

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