Minnesota Bankruptcy Case: Yes, You are a Debt Relief Agency

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Milavetz, Gallop & Milavetz, P.A. v. U.S., 130 S.Ct. 1324 (2010).

Case Summary:

Yes, You are a Debt Relief Agency

The Court affirmed the Eighth Circuit’s ruling that attorneys are “debt-relief agencies” under 11 U.S.C. § 528(a)(4) and (b)(2), but reversed the Eighth Circuit’s ruling that 11 U.S.C. § 526(a)(4), which restricts attorneys from advising clients to take on more debt in contemplation of bankruptcy, is unconstitutionally overbroad and violates attorneys’ First Amendment Rights.

In a unanimous decision (authored by Justice Sotomayor), the Court said that under the plain language of BAPCPA, attorneys are debt-relief agencies even though they are not specifically listed. The Court read the provisions more narrowly than the Eighth Circuit, and found that the phrase “in contemplation of bankruptcy” was directed at a specific type of misconduct designed to manipulate the protections of the bankruptcy system: incurring more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.

The Court also found that because § 528 is narrowly tailored to prohibit an attorney from advising a client to commit abusive pre-filing conduct, an attorney could not unknowingly violate the provision, and that it would not chill attorney speech or inhibit the attorney-client relationship.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

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