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Court upholds lawyer bankruptcy advice law

  Bankruptcy  -   POSTED: 2010/03/08 17:10

The Supreme Court on Monday unanimously upheld part of the U.S. bankruptcy law that bars attorneys from advising clients to take on more debt while considering a bankruptcy filing.

The opinion by Justice Sonia Sotomayor reverses a ruling by a U.S. appeals court that a provision of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was unconstitutionally broad and violated free-speech rights.

The provision prohibits bankruptcy professionals like attorneys from advising their clients to incur more debt, such as mortgages or student loans, before filing for creditor protection.

The ruling is a victory for the U.S. Justice Department, which defended the provision. It said Congress adopted the law fight abuse of the bankruptcy system encouraged by lawyers.

Department attorneys also argued that the law can be interpreted narrowly to prohibit only advice that a client take new debt with the intent of abusing the bankruptcy system. Sotomayor agreed with that interpretation.

The Minneapolis-based bankruptcy law firm Milavetz, Gallop & Milavetz PA, two of its attorneys and two prospective clients sued in 2007, saying the law violated constitutional free-speech rights under the First Amendment.

A U.S. appeals court based in St. Louis agreed, ruling that the law prevented lawyers from fulfilling their duty to clients to give them appropriate financial advice.


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