My Advice Is to Stop Contemplating Bankruptcy So I Can Give You My Advice


This week the U.S. Supreme Court heard a challenge to restrictions on the advice that bankruptcy lawyers may give their clients. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, lawyers are forbidden to suggest that clients "incur more debt…in contemplation of" bankruptcy. The aim was to deter attorneys from encouraging people to go on spending binges right before filing for bankruptcy in the expectation that they won't have to pay the bills they rack up. But the statute's language is broad enough to encompass perfectly legitimate advice that an attorney may be ethically required to offer. G. Eric Brunstad, the attorney representing the Minneosta law firm that challenged the statute, offered an example during the oral arguments:

Suppose the debtor's problem is that he lives in a house that is too expensive for him. He comes to the lawyer: I'm in financial distress….The lawyer would logically suggest: Why don't you sell your house and rent an apartment? But the signing of the lease is incurring debt, the lease obligation.

It also might make sense for someone contemplating bankruptcy to refinance a mortgage at a lower rate or to pay off high-interest credit card debt by taking out a low-interest home equity loan. Although both moves technically involve taking on new debt, they are not abuses of the bankruptcy system. Yet lawyers who suggested them apparently would be subject to penalties under the 2005 law. Justice Antonin Scalia agreed that "it's a stupid law" but wondered, "Where is the prohibition of stupid laws in the Constitution?" The line drew laughter and may resonate with self-identified strict constructionists, but since this particular stupid law involves restrictions on the words that flow from people's mouths the answer seems pretty clear.

The oral argument transcript is here (PDF). The briefs are here.