Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA)

Case Law

Milavetz , Gallop & Milavetz, P.A. v. U.S., 8th Cir. (No. 07-2405) (Sept. 4, 2008)

Background:  Law firm that practices bankruptcy law sought declaratory judgment that certain provisions under Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) pertaining to “debt relief agencies”:  (1) do not apply to attorneys and law firms, and (2) are unconstitutional as applied to attorneys.  The District Court granted summary judgment for plaintiff as to both assertions.  The U.S. appealed.

Holding:  The Eighth Circuit reversed in part and affirmed in part, finding that:

  • Attorneys who provide “bankruptcy assistance” to “assisted persons” are unambiguously included in the definition of “debt relief agencies” in 11 U.S.C. §101(12A).
  • 11 U.S.C. §526(a)(4), which  prohibits attorneys falling within the definition of debt relief agencies from advising assisted persons to incur any additional debt in contemplation of bankruptcy, is overbroad and  unconstitutional.  The provision “prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited by the Bankruptcy Code or other applicable law.”  As such, §526(a)(4) “is not narrowly and necessarily limited to restrict only that speech that the government has an interest in restricting.”
  • The advertising disclosure requirements mandated by 11 U.S.C. §§528(a)(4) and (b)(2)(B) do not violate the First Amendment.  Those provisions, requiring debt relief agencies to disclose in advertisements that they are debt relief agencies and help people file for bankruptcy relief under the Bankruptcy Code, are intended to avoid potentially deceptive advertising, and are reviewed under the rational basis standard.  The disclosure requirements in §528 “are reasonably and rationally related to the government’s interest in preventing the deception of consumer debtors.”