US district judge finds bankruptcy provision violates attorney speech rights

[JURIST] The US District Court for Connecticut [official website] has blocked enforcement of a new provision [text] of the US Bankruptcy Code against attorneys seeking to advise clients about taking on additional debt. District Judge Christopher Droney [official profile] issued a preliminary injunction Tuesday, ruling that the statute was so broad as to unconstitutionally restrict attorneys' First Amendment rights. The provision prohibits debt-relief agencies from advising clients "to incur more debt in contemplation of ... filing a case" under the Bankruptcy Code. AP quoted Droney as writing,

If the government seeks to prevent manipulation of the bankruptcy system, a more narrowly tailored approach would be to penalize those who take on certain types of debts.
The lawsuit was filed [JURIST report] in 2006 by the National Association of Consumer Bankruptcy Attorneys (NACBA) and the Connecticut Bar Association [professional association websites].

Droney's ruling follows a similar decision [opinion, PDF; Reuters report] handed down Thursday by the US Court of Appeals for the Eighth Circuit [official website; JURIST news archive]. Ruling that attorneys are "debt relief agencies" as defined by the Bankruptcy Code, the St. Louis-based court held that the challenged provision was not sufficiently tailored because it could restrict legal advice regarding debt that "may not be abusive or harmful to creditors." The provision was part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 [text], which made filing for bankruptcy more difficult by requiring credit counseling and mandating above-average earners to file under the restrictive Chapter 13 [text]. The NACBA has criticized the new law [JURIST report] as doing little to stop abuses of the bankruptcy system and placing unnecessary hurdles in front of people with legitimate reasons to file for bankruptcy.

 

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