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03/09/10

Milavetz arose from changes made to the bankruptcy code that required debt relief advisors to

specifically identify themselves as such in any advertisements to the general public, and to refrain from advising clients to incur additional debt in preparation for bankruptcy. The petitioners in the case are a group of lawyers and law firms that filed for declaratory relief. They asked the Court to find that law firms are not debt relief agencies under the act, or that in the alternative, the provisions mandating disclosure in advertisements and prohibiting advising clients to incur additional debt are unconstitutional as they apply to attorneys.

The Court today ruled against them on all three questions in an opinion written by Justice Sotomayor.

The Court had little problem finding that the bankruptcy code included lawyers and law firms among those considered ‘’debt relief agencies’’ pointing to specific provisions that applied to actions only a lawyer could take.

In regards to advising clients to take on more debt, the argument focused first on the breadth of the statute. Milavetz argued that the statute was unconstitutional because it was overly broad. Under Milavetz’ reading of the statute, attorneys acting as debt relief advisors would be prohibited from advising their clients to take on any additional debt, even if it was sound legal advise. The Court however disagreed, holding that the statute ‘’...prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.’’ Under this reading of the statute, the Court held that it is not overly broad.

Finally the Court upheld the requirement that attorneys and law firms providing debt relief services in preparation of bankruptcy must disclose this in advertisements. The court reiterated the rule that ‘’...the States retain authority to regulate inherently misleading advertisements, particularly through disclosure requirements.’’

Supreme Court Ruling Could Affect Bankruptcy Practices By Joshua Nave

The Supreme Court today released its decision in MILAVETZ, GALLOP & MILAVETZ, P. A. v. UNITED STATES, viewable at

www.supremecourtus.gov/opinions/09pdf/08-1119.pdf.