Bankruptcy Knoxville

A Minnesota law firm is arguing against a provision in a 2005 bankruptcy law that can put lawyers in conflict with ethics rules and result in misleading disclosures in advertising. The case hinges on a provision that bars debt relief agencies from encouraging a person to “incur more debt” with the understanding of filing for bankruptcy soon thereafter. The question arises, then, of whether attorneys are debt relief agencies. Until now the law has required such a disclosure be made by bankruptcy attorneys. But the Milavetz law firm is challenging that designation on the grounds of it misleading their clients. Law dot com has more:

“This provision requires truncated advice,” he said, adding that the practical effect is to make it impossible for lawyers to comply with their ethical obligation to truthfully advise a client.

The provision also has a chilling effect on lawyers, Brunstad said, noting that penalties for violating the provision are serious and have driven “conscientious bankruptcy lawyers” from this practice area.

Assistant to the Solicitor General William Jay countered that the restriction on advice is limited to advice intended to abuse the bankruptcy system. But he quickly ran into a fast series of questions and hypotheticals from a skeptical Chief Justice John Roberts Jr.

“Under your construction, it seems a lawyer trying to give correct, ethical advice has to pause before every sentence,” Roberts said. “This is a regulation of the attorney-client relationship to pursue an unrelated objective.”

Jay insisted the objective was not unrelated. “The statute protects the client from unethical advice,” he said. “The attorney is the sophisticated player here.”

Brunstad told the justices that they could avoid the constitutional issues raised by the advice prohibition and a requirement that attorneys giving bankruptcy advice disclose in advertisements that they are a “debt relief agency” if the justices find that lawyers are not covered by the debt relief agency provisions.

It’s an interesting case that could have far-reaching affects on this industry.

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