8th Circuit: Bankruptcy Provision Violates Lawyer Free Speech Rights
A federal appeals court has struck down a provision in the 2005 federal bankruptcy law that bars lawyers from advising clients to take on more debt before filing for bankruptcy.
The St. Louis-based 8th U.S. Circuit Court of Appeals said the ban violated the free speech rights of lawyers and prevented them from fulfilling their duties to clients, the Wall Street Journal reports. Yesterday’s ruling (PDF) is the first from a federal appeals court on the provision.
The St. Louis-based court said sometimes it is beneficial for clients to take on more debt. It cited examples of a debtor who needs a car to get to work or who qualifies for a refinanced mortgage at a lower rate.
The provision before the court had barred debt relief agencies from counseling clients to take on more debt in contemplation of bankruptcy. The court said lawyers fell within the law’s definition of debt relief agencies, but the provision is unconstitutional as applied to them.
A partial dissenter said the statute should be construed to ban only legal advice that is intended to abuse the protections of bankruptcy laws, a reading that would avoid the constitutional problem.
University of California-Irvine law school dean Erwin Chemerinsky told the newspaper that the provision before the 8th Circuit was the most troubling constitutional problem with the law. “This is an issue that’s going to make it to the Supreme Court,” he said.
