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By Cathy Ta and Alexander Brand

While the economy is doing better of late, consum­ers are always at risk of being scammed and consumers who seek debt relief are no exception. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). The purpose of the BAPCPA was to enact a series of protections for consum­ers seeking debt relief through the bankruptcy courts and through debt relief providers, including: (1) restricting attorneys from advising clients to take on new debt prior to filing for bankruptcy; and (2) prohibiting attorneys from advising clients to incur new debt to pay for attorney fees prior to filing for bankruptcy.1 The net effect of these pro­tections was for the government to restrict what attorneys can and cannot say to their clients.

These restrictions on an attorney’s free speech rights were challenged in 2010 and 2018 respectively, whereby the Supreme Court and the 11th Circuit Court of Appeals upheld them respectively. It is important that attorneys and consumers alike are aware of these restrictions so that attorneys do not inadvertently run afoul of them and consumers are protected from attorneys who may violate them.

There is No Question that Bankruptcy Attorneys are Debt Relief Agencies
The BAPCPA applies to debt relief agencies; in turn, bankruptcy attorneys are considered debt relief agencies under the BAPCPA. A debt relief agency is any person who provides bankruptcy assistance to another individual for compensation, including providing legal advice for an actu­al or potential bankruptcy case.2 Under a plain language interpretation of these definitions, the Supreme Court in Milavetz, Gallop & Milavetz, P. A. v. United States, 559 U.S. 229 concluded that attorneys are clearly debt relief agencies subject to the BAPCPA.3

As Debt Relief Agencies, Attorneys Cannot Advise Clients to Incur Additional Debt Prior to Filing Bankruptcy and to Abuse Bankruptcy Laws
Under BAPCA, debt relief agencies cannot advise a cli­ent or potential client “to incur more debt in contempla­tion of” filing a bankruptcy case.4 In Milavetz, this restriction on speech was challenged under the First Amendment as unconstitutionally vague and prohibiting “not only affir­mative advice, but also any discussion of the advantages, disadvantages, or legality of incurring more debt.”5

The Supreme Court rejected the argument, ruling that the restriction is to be construed narrowly6 such that it prohibits a bankruptcy attorney “only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.”7 If there is a legitimate reason for incurring more debt prior to filing bankruptcy, the attorney can still discuss the pros and cons of incurring that debt with the client and advise the client accordingly. The only restriction on an attorney’s advice to a client is that the attorney cannot advise the client to take on more debt in an attempt to take advantage of bank­ruptcy laws. Under this narrow reading, the Supreme Court concluded that the statute was not unconstitutionally vague and therefore did not violate the First Amendment.8

It is clear that an attorney cannot advise a client to incur more debt prior to filing bankruptcy without a legiti­mate reason; moreover, an attorney cannot provide such advice on the basis of exercising their First Amendment free speech rights. An attorney who violates this restriction faces the risk of liability for potential damages.9 Further, if a debtor is exposed to an attorney who advises them in violation of this restriction, the debtor may have options to recover damages from the attorney.10

As Debt Relief Agencies, Attorneys Cannot Advise Clients to Incur Debt to Pay for Pre-Filing Attorney Fees
BAPCPA also restricts debt relief agencies from advis­ing a client or potential client to incur debt to pay for pre-filing attorney fees, such as by paying by credit card. In Cadwell v. Kaufman, Englett & Lynd, PLLC, the 11th Circuit determined “whether [this] second prohibition—on advice to incur debt to pay for bankruptcy related represen-tation—likewise entails an invalid-purpose requirement.”11

Unlike the first restriction, this second restriction prohibits an attorney from ever advising a client to incur debt before filing bank­ruptcy, regardless of whether or not there is a legitimate purpose, if it is to pay attorney fees.12 The 11th Circuit upheld this restriction on the grounds that when an attorney advises a client to incur debt to pay the attorney in full, this conduct is inherently abusive and potentially detrimental to the client.13 The reason is simple: such advice puts the attorney’s interest at odds with that of the debtor (and other creditors). Moreover, the new debt used to fund attorney fees could be deemed improper and challenged as excepted from the bankruptcy discharge, which would deny the debtor a fresh start – the entire purpose of bank­ruptcy law.14 Accordingly, Milavetz’s invalid purpose test was not appli­cable to incurring debt to pay for attorney fees or an attorney retainer. Similar to the first restriction, an attorney who violates this restriction faces liability for potential damages.

Both Milavetz and Cadwell provide important guidance to attor­neys and debtors with respect to what type of advice an attorney can provide to the debtor prior to the filing of bankruptcy, with respect to incurring new debt prior to the filing. The BAPCPA’s restrictions on such advice have been construed narrowly and upheld as constitu­tional. Attorneys can inadvertently violate these statutory restrictions if they are unaware of their scope. Conversely, these statutory restric­tions provide protections to debtors seeking assistance with debt relief, including a right to claim damages against attorneys for violations of these restrictions.

1 These restrictions are set forth at 11 U.S.C. § 526(a)(4).
2 11 U.S.C. §§101(4A) and 101(12A); Milavetz v. U.S., 559 U.S. 229, 235-36 (2010).
Milavetz, 559 U.S. at 236, 239.
4 11 U.S.C. §526(a)(4) (emphasis added).
5 Milavetz, 559 U.S. at 240.
Id. at 242-43.
Id. at 247-48.
9 11 U.S.C. §526; Milavetz, 559 U.S. at 241-42.
10 Id.
11 Cadwell v. Kaufman, Englett & Lynd, PLLC, 886 F.3d 1153, 1155 (11th Cir. 2018).
12 Id. at 1159.
13 Id.
14 Id

Cathy Ta is no longer with BB&K. If you have questions about this issue please contact Caroline Djang at

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