Monday, January 22, 2007

BAPCPA Provisions Held Unconstitutional

In the December 7, 2006 decision in the case of Milavetz, Gallop & Milavetz, P.A. vs. USA, 2006 WL 3524399 (D. Minn.) a Federal District Court in Minnesota found the section of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) containing advertising disclosure requirements [11 USC 528(a)(4) and 528 (b)(2)] and the section prohibiting "debt relief agencies" from advising client to incur more debt in contemplation of bankruptcy [11 USC 526 (a)(4)] to be unconstitutional as applied to attorneys.

The Court analyzed section 528(a)(4) and 528(b)(2) by applying "intermediate scrutiny" under which the government may only regulate truthful bankruptcy assistance advertisements if the regulation 1. directly advances 2. a substantial government interest and 3. is narrowly drawn. The Court found that these BAPCPA provisions failed all three parts of this intermediate scrutiny.

The Court found section 526 (a)(4) to be a content-based restriction on protected speech and found that it did not meet the "strict scrutiny" test. The Court explained that "Attorneys have a First Amendment right - let alone established professional ethical duty - to advise and zealously represent their clients".

The Court further found that attorneys are beyond the scope of a BAPCPA "debt relief agency". The Court stated that this view is support by the doctrine of constitutional avoidance under which the Court must opt for a construction that avoids grave constitutional questions. For these reasons, the Court held that the "debt relief agency" provisions of BAPCPA found in sections 526, 527, and 528 do not apply to attorneys.
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