MinnLawyer Blog

Chad Schulze, Bob Milavetz, Alan Milavetz and Barbara Nevin are the four Milavetz firm attorneys involved in the challenge to the bankruptcy law.

The U.S. Supreme Court has left intact the handcuffs around the wrists of bankruptcy attorneys placed there by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The court determined that attorneys are debt relief agencies and thus their advertisements and other speech can be regulated regardless of the First Amendment. The case is Milavetz, Gallop & Milavetz v. United States.  

In so ruling, the court reversed the 8th U.S. Circuit Court of Appeals holding that the statute was overbroad.  

BAPCA says that attorneys cannot advise a debtor to take on debt or incur fees in preparation for a bankruptcy, and also says that attorneys must disclose in their advertising that they are “debt relief agencies.” With respect to the former requirement, the court determined that the statute only restricts advising clients to incur debt that is abusive to the bankruptcy system. “We conclude that [the law] prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose,” wrote Justice Sonia Sotomayor.  

She elaborated in a footnote: “We emphasize that awareness of the possibility of bankruptcy is insufficient to trigger [BAPCA’s] prohibition. Instead, that provision proscribes only advice to incur more debt that is principally motivated by that likelihood. Thus, advice to refinance a mortgage or purchase a reliable car prior to filing because doing so will reduce the debtor’s interest rates or improve his ability to repay is not prohibited, as the promise of enhanced financial prospects, rather than the anticipated filing, is the impelling cause. Advice to incur additional debt to buy groceries, pay medical bills, or make other purchases ‘reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor,’ … is similarly permissible.”  

The court also said that the advertising and disclosure requirements are reasonably related to the government’s interest in preventing the deception of consumers. “[The statute’s] required disclosures are intended to combat the problem of inherently misleading commercial advertisements—specifically, the promise of debt relief without any reference to the possibility of filing for bankruptcy, which has inherent costs. Additionally, the disclosures entail only an accurate statement identifying the advertiser’s legal status and the character of the assistance provided, and they do not prevent debt relief agencies like Milavetz from conveying any additional information,” Sotomayor wrote.  

The opinion is unanimous, with Justices Antonia Scalia and Clarence Thomas concurring in the judgment but writing separate concurrences. 

A local law firm — Edina-based Milavetz Gallop and Milavetz — was the plaintiff in the case.

Update:  Robert Milavetz, head of the Milavetz firm, said the Supreme Court’s opinion did what the firm set out to do–recognize that the prohibitions on legal advice were overbroad and narrowed the reach of the law.  “The holding did give us a victory,” Milavetz said. “The Supreme Court did say there are some cases where new debts are allowed and that is what we wanted.  The court ruled in favor of the public and in favor of attorneys who want to give honest advice.”