Part of New BK Law Ruled Unconstitutional [Archive]

SinkingFast

08-22-2006, 07:50 AM

Here's a copy of the text so everyone can read without clicking on the Link. Never know when periodicals will update and the page will disappear.

Posted on Mon, Aug. 14, 2006

Part of bankruptcy law that prevents lawyers’ advice is ruled unconstitutional
By PAMELA YIP The Dallas Morning News

DALLAS — Consumer attorneys have scored a significant victory against the new bankruptcy law.

A federal judge in Dallas ruled recently that a provision of the law is unconstitutional because it prevents lawyers from giving their best advice to clients in financial distress.

Critics of the Bankruptcy Abuse Prevention and Consumer Protection Act say the law, which went into effect last fall, caters to the credit card industry while putting unnecessary and harsh burdens on consumers who legitimately need relief from crushing debt loads.

Susan B. Hersh, a Dallas bankruptcy attorney, filed suit to challenge a provision of the law that forbids an attorney from advising a client to take on additional debt before a bankruptcy filing.

The provision was intended to discourage unscrupulous bankruptcy filers from taking on debt with the expectation that it will be erased in the bankruptcy case.

U.S. District Judge David C. Godbey ruled the provision “was facially unconstitutional.”

“Rather than changing the system to close the loopholes or penalize those who take on such debt, Congress ... enacted a prophylactic rule, banning the bankruptcy attorneys from advising their clients to take on additional debts ‘in contemplation’ of bankruptcy,” Judge Godbey said.

“Without addressing all the complexities of the bankruptcy law, it seems quite possible that sometimes taking on more debt could be the most financially prudent option for someone considering bankruptcy.”

Examples include refinancing a loan to get a lower interest rate and getting a car loan so a debtor has the means of getting to a job, Judge Godbey said. Thus, the provision in the law prevents lawyers from “advising clients to take actions that are lawful” and “unconstitutionally restricts Hersh’s speech,” the judge ruled.

Hersh said in an interview that the provision in the law is such an “arcane restriction on the attorney-client relationship that it was just absurd.”

Overall, the bankruptcy law “made everybody out to being a crook, liar and thief,” Hersh said.

“It treats everybody almost like a criminal when the majority are just unfortunate,” Hersh said. “What they need to be able to do is to move on so they can rejoin the economy and the credit industry.”

The provision was overly broad, said Howard Marc Spector, Hersh’s attorney.

As a lawyer, he said, “They’re paying me to draw these fine legal distinctions. But in this particular situation, there is no distinction. All advice regarding borrowing is illegal.”

And the provision was unnecessary to boot, he said.

“The law says you can’t discharge debts procured through fraud,” he said.

Judge Godbey hasn’t issued a final judgment in the case, so for now the law is technically still in effect, the lawyers said. And even when there is a final judgment, the federal government can appeal.

“It is obviously a ruling that’s still under review, and we’ve not made any determination of what our next step will be,” Justice Department spokesman Charles Miller said.

Meanwhile, the Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys have filed a lawsuit challenging the same provision that Hersh did.

Ultimately, Spector said, he hopes consumers can “go back to their bankruptcy lawyer, and rather than getting some double talk about what the bankruptcy lawyer can tell them to do, they can rely on the fact that their lawyer can give them all of the answers to their problems, not just part of the answers.”

I wish we were attny shopping now instead of 6 months ago. We needed some straight answers on what to do and not one attny would help us with the financial decisions we needed to make.

lrprn

08-27-2006, 01:26 PM

Nothing's been "fixed". The law hasn't changed. It's under review. Actually, it's a win for the credit industry since if it actually goes into effect, it'll allow people who are already broke to borrow even more. Probably from sub-prime lenders. Those slimy people you hate would win. You'd still be in debt, and they'd still be making money.

Ch 7 and 13 bk lawyers have successfully taken the first legal step in the courts to again give the kinds of financial advice that every other type of lawyer is currently able to give. And think about this, Fedler....when solid legal financial advice is allowed before filing, it's quite possible that potential filers will discover another way to get out of debt that they wouldn't have known about otherwise and will decide not to file bk. That should make you very happy.



	Bankruptcy Forum > Before the Discharge > Bankruptcy & Credit News > Part of New BK Law Ruled Unconstitutional PDA Part of New BK Law Ruled Unconstitutional lrprn 08-22-2006, 05:08 AM Part of the new bankruptcy law that went into effect last fall that prevents bk lawyers from giving financial advice has been ruled unconstitutional by a federal judge - http://www.timesleader.com/mld/timesleader/living/15268887.htm wenderful 08-22-2006, 05:23 AM That's a major step in the right direction. It should be interesting to see how this plays out over the next few years. brokemommy 08-22-2006, 07:01 AM good BassBoy 08-22-2006, 07:14 AM EXCELLENT find lrprn! I was wondering when the BK Attorney's were going to challenge the new laws. SinkingFast 08-22-2006, 07:50 AM Here's a copy of the text so everyone can read without clicking on the Link. Never know when periodicals will update and the page will disappear. Posted on Mon, Aug. 14, 2006 Part of bankruptcy law that prevents lawyers’ advice is ruled unconstitutional By PAMELA YIP The Dallas Morning News DALLAS — Consumer attorneys have scored a significant victory against the new bankruptcy law. A federal judge in Dallas ruled recently that a provision of the law is unconstitutional because it prevents lawyers from giving their best advice to clients in financial distress. Critics of the Bankruptcy Abuse Prevention and Consumer Protection Act say the law, which went into effect last fall, caters to the credit card industry while putting unnecessary and harsh burdens on consumers who legitimately need relief from crushing debt loads. Susan B. Hersh, a Dallas bankruptcy attorney, filed suit to challenge a provision of the law that forbids an attorney from advising a client to take on additional debt before a bankruptcy filing. The provision was intended to discourage unscrupulous bankruptcy filers from taking on debt with the expectation that it will be erased in the bankruptcy case. U.S. District Judge David C. Godbey ruled the provision “was facially unconstitutional.” “Rather than changing the system to close the loopholes or penalize those who take on such debt, Congress ... enacted a prophylactic rule, banning the bankruptcy attorneys from advising their clients to take on additional debts ‘in contemplation’ of bankruptcy,” Judge Godbey said. “Without addressing all the complexities of the bankruptcy law, it seems quite possible that sometimes taking on more debt could be the most financially prudent option for someone considering bankruptcy.” Examples include refinancing a loan to get a lower interest rate and getting a car loan so a debtor has the means of getting to a job, Judge Godbey said. Thus, the provision in the law prevents lawyers from “advising clients to take actions that are lawful” and “unconstitutionally restricts Hersh’s speech,” the judge ruled. Hersh said in an interview that the provision in the law is such an “arcane restriction on the attorney-client relationship that it was just absurd.” Overall, the bankruptcy law “made everybody out to being a crook, liar and thief,” Hersh said. “It treats everybody almost like a criminal when the majority are just unfortunate,” Hersh said. “What they need to be able to do is to move on so they can rejoin the economy and the credit industry.” The provision was overly broad, said Howard Marc Spector, Hersh’s attorney. As a lawyer, he said, “They’re paying me to draw these fine legal distinctions. But in this particular situation, there is no distinction. All advice regarding borrowing is illegal.” And the provision was unnecessary to boot, he said. “The law says you can’t discharge debts procured through fraud,” he said. Judge Godbey hasn’t issued a final judgment in the case, so for now the law is technically still in effect, the lawyers said. And even when there is a final judgment, the federal government can appeal. “It is obviously a ruling that’s still under review, and we’ve not made any determination of what our next step will be,” Justice Department spokesman Charles Miller said. Meanwhile, the Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys have filed a lawsuit challenging the same provision that Hersh did. Ultimately, Spector said, he hopes consumers can “go back to their bankruptcy lawyer, and rather than getting some double talk about what the bankruptcy lawyer can tell them to do, they can rely on the fact that their lawyer can give them all of the answers to their problems, not just part of the answers.” I wish we were attny shopping now instead of 6 months ago. We needed some straight answers on what to do and not one attny would help us with the financial decisions we needed to make. anonymuse 08-26-2006, 09:44 PM Glad to see issues with the law being challenged and fixed! Fedler 08-27-2006, 09:14 AM Nothing's been "fixed". The law hasn't changed. It's under review. Actually, it's a win for the credit industry since if it actually goes into effect, it'll allow people who are already broke to borrow even more. Probably from sub-prime lenders. Those slimy people you hate would win. You'd still be in debt, and they'd still be making money. lrprn 08-27-2006, 01:26 PM Nothing's been "fixed". The law hasn't changed. It's under review. Actually, it's a win for the credit industry since if it actually goes into effect, it'll allow people who are already broke to borrow even more. Probably from sub-prime lenders. Those slimy people you hate would win. You'd still be in debt, and they'd still be making money. Ch 7 and 13 bk lawyers have successfully taken the first legal step in the courts to again give the kinds of financial advice that every other type of lawyer is currently able to give. And think about this, Fedler....when solid legal financial advice is allowed before filing, it's quite possible that potential filers will discover another way to get out of debt that they wouldn't have known about otherwise and will decide not to file bk. That should make you very happy.