Supreme Court Bars Attorneys From Bankruptcy Advice to Increase Debt Before Filing

March 8  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.

Justice Sotomayor also upheld the law’s requirement that attorneys make certain disclosures in their advertisements and ruled that attorneys who provide bankruptcy assistance to certain persons are debt relief agencies within the meaning of the law. (Reporting by James Vicini. Editing by Robert MacMillan)

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