By MATT CHANDLER
Buffalo Law Journal

In last week's unanimous Supreme Court ruling in the case of Milavetz v. United States - a case that saw a law firm challenge several key provisions of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) - the court upheld the legislation as written and offered some clarification to what some in the field considered gray areas left open for interpretation.

The majority opinion, authored by Hon. Sonia Sotomayor answered three questions that arose out of the Bush-era legislation aimed at curtailing what some saw as rampant fraud and abuse of the bankruptcy system. The case addressed:

• Whether attorneys are to be classified as "debt-relief agencies."
• The reasonable scope of section 526(a)(4) of the act, which prohibits an attorney from advising a client to incur more debt prior to filing bankruptcy.
• If the disclosure requirements in section 528 of the BAPCPA are unconstitutional when applied to attorneys.

In its ruling, the court upheld the requirement that bankruptcy attorneys refer to themselves as debt-relief agencies. This was challenged in the case because the plaintiffs argued against being held to the standards and rules set forth for debt-relief agencies. In upholding the requirement, the ruling stated that "in enumerating specific exceptions to the debt-relief-agency definition, Congress indicated no intent to exclude attorneys."

Courtney Quinn is a bankruptcy attorney with Jeffrey Freedman attorneys. She has followed the Supreme Court case and said the issue of restricting the ability for an attorney to advise a client is a slippery slope.

"The argument is that it goes against the nature of the attorney-client relationship," she said. "It limits how an attorney can advise their client as to what their options are and properly represent the client."

While some attorneys have expressed resistance to being classified as debt-relief agencies, at least one local bankruptcy lawyer sees no problem with the court's decision. Barry Sternberg is a Cheektowaga-based bankruptcy practitioner who believes the rule can be a benefit to his practice.

"I don't worry about that at all," he said. "In fact, I think it (BAPCPA) is rather a useless law, but frankly, me and a lot of other attorneys have embraced it. In a lot of potential clients' minds, it sort of reinforces that this is a debt-relief agency, this is who I want to be talking to."

Sternberg said the court ruling, and the law itself, has had minimal impact on how he conducts his practice.

"The purpose of the law as I understand it was that the Congress wrongly believed that all sorts of people were being tricked into filing bankruptcy and that's not the case. People that come in know what they are coming in for," he said.

He also questions the idea that tougher rules were needed to keep clients from incurring excessive debt prior to filing for bankruptcy protection.

"I think there is sort of a misconception that bankruptcy lawyers were out there advising people to run up their debt before they filed bankruptcy, which is completely ludicrous," Sternberg said. He called the law "overbroad" in restricting attorneys from advising clients to incur any debt at all.

"There are good reasons to advise a client to incur debt (prior to filing bankruptcy). For instance, if they come in driving an old, beater car and they need new transportation, it's not unusual for lawyers to say, ‘OK, go out and buy a new car and then file bankruptcy because no one gets hurt,' " Sternberg said. "They are going to continue paying on that debt so the lender won't lose anything and the debtor will have reliable transportation." To that point, he sees the Supreme Court ruling as a positive change to that initial rule.

"The decision seemed to kind of leave that open-ended," he said. "As I read the decision, it was basically saying you can't tell the debtor to load up on debt to try and defraud the creditors, but Sotomayor seemed to leave open the prospect that you can tell them to incur debt for other valid reasons."

Quinn called the court opinion on the ability to advise a client on incurring debt "narrow" but said it is helpful in clarifying at least some instances where incurring debt would be acceptable.

"Although I think it is helpful, the law is still a little bit ambiguous," she said. "There are going to be cases where incurring debt could be helpful to the client's position prior to bankruptcy, but it could also improve their future financial prospects, so I also think there is going to be some overlap there."

Buffalo attorney Matthew Lazroe, who has been practicing since 2006, sees this element of the ruling as a non-issue, at least when it comes to personal bankruptcy.

"In this area, it is rare that I have a client who comes in who makes over $100,000," he said. "Most of the people I see, their credit cards are already maxed out, they are on unemployment, or they never had any credit to begin. I've never had to advise any clients to not buy that big-screen TV before filing, because that isn't happening here."