- How can I challenge the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act?
From Attorney Liability in Bankruptcy, Chapter 8
The attorney liability provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BRA)1 will present many attorneys with a difficult choice if they decide to continue to advise clients about bankruptcy: either challenge these provisions or risk conceding important rights and professional independence. The constitutional implications of the BRA look like a table of contents in a constitutional law treatise:2
- First Amendment issues arise because of the ways in which attorneys must alter their advertising and the limitations on the advice they may give their clients;
- Privacy rights of clients may be infringed because of the debtor disclosure requirements;
- Equal protection questions are raised by the “means test”; and
- Separation of powers and Tenth Amendment limitations may invalidate the limits on certain judicial actions and the Act’s regulation of attorneys.
This article targets two specific First Amendment issues in the BRA’s regulation of individual attorneys: the advertising requirements and the restrictions on attorney advice-giving. This article suggests arguments and approaches to challenging these restrictions.
Two Essential Cases for Challenging Attorney Advertising Restrictions
I. BRA’s Regulation of Attorney Advertising
Under Code §§ 526, 527, and 528, a lawyer who provides any “bankruptcy assistance”3 to an “assisted person”4 is deemed a “debt relief agency.”5
Because the BRA speaks of “persons” rather than “debtors,” attorney interaction with a wide range of clients can bring them within the definition of a debt relief agency. Just about any middle- or low-income person who walks into your office could be an “assisted person.” If their debt is mostly consumer debt and their assets are limited, they are likely to be “assisted persons.” Give that person some assistance regarding bankruptcy—their own or someone else’s—and you’ve become a “debt relief agency.” The assisted person might be a landlord seeking advice about his rights in the bankruptcy case of a tenant, a family member seeking protection from claims that a bankruptcy debtor transferred property to her fraudulently, a domestic relations client being counseled to see a bankruptcy attorney in connection with a divorce, or even a creditor making a claim in a bankruptcy case.6
Having been transformed into a DRA, you now have certain restrictions on any advertisement of services related to bankruptcy, credit defaults, mortgage foreclosures, evictions, or debt problems. Regardless of what you actually do for your clients, you now must advertise that: “We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”7 Suppose you don’t want to include that statement in your advertising. Suppose you think it is inaccurate, because in fact you represent creditors or you help parents collect child support. Suppose you do represent debtors, but you think people who are looking for a range of options for dealing with debt will be discouraged from seeking your assistance because they will think bankruptcy is the only option you provide. Or perhaps you think the average consumer who sees this statement will not understand that you are an attorney and may confuse you with document preparation services. You may decide to challenge the constitutionality of this advertising directive.
The Alternative to a Constitutional Challenge: Getting Out of the Bankruptcy Business
If your practice involves providing information about bankruptcy but you don’t actually represent clients in bankruptcy actions, you may avoid the liability provisions of BRA by simply refusing to give any information on bankruptcy to your clients. To protect yourself from claims of negligence for failing to inform clients of their rights and obligations under bankruptcy law, you should specifically limit the scope of your representation in your representation agreement. You might state, for example:
“You understand and agree that I will not be providing you with information or advice regarding any bankruptcy law, even if bankruptcy issues are relevant to this representation. If you want advice about how bankruptcy law affects your case, I will be happy to provide you with a list of attorneys who can provide this advice.”
The First Amendment protects attorney advertising as commercial speech.8 Commercial speech that is false or misleading may be freely regulated.9 As with any other speech, reasonable restrictions on the time, place, and manner of lawyer advertising are permissible.10 Content regulation, however, is unconstitutional unless it meets the commercial speech test of Central Hudson Gas & Electric Corporation v. Public Service Commission of New York.11
In commercial speech cases, then, a four-part analysis has developed. At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.12
Attorney advertising of bankruptcy services is within the realm of protected commercial speech. It does not concern illegal activity, nor is it inherently misleading. Thus, the first task in applying the Central Hudson test becomes anticipating what governmental interest the restriction on advertising might be serving. The court must restrict its analysis to the interests identified by the government. If the court finds one of those proffered interests “substantial,” that’s enough to satisfy the first prong of the test.13 In the context of attorney commercial speech, the Court has considered a very few state interests to be substantial. These are the interest in maintaining standards of licensed professionals,14 in preserving the reputation of the legal profession,15 and in protecting the privacy and decision making of consumers.16
The most common justification, however, is that restrictions are designed to prevent deception. In this context, the U.S. Supreme Court has held that misstatements that might be overlooked in other advertising may be especially harmful given the public’s lack of sophistication regarding legal services.17 While soap manufacturers may advertise that they are “powerful” or “best,” attorneys may not. Claims as to the quality of services are not easily subject to measurement or verification, and therefore are more likely to be so misleading as to warrant restriction.18 In cases involving required disclosures or disclaimers in attorney advertising, a number of disclaimer requirements have been upheld under the Central Hudson test, all justified as advancing a substantial governmental interest in preventing misleading, deceptive or predatory speech.19 For example, most states require that direct mail advertising include a statement indicating that the material is an advertisement.20
It seems likely that the government would argue that the BRA’s advertising directives are justified by an interest in reducing confusion or deception of consumers. Requiring that debt relief agencies expressly indicate that they provide bankruptcy assistance reduces the risk that consumers may be misled regarding the nature of the services the agencies provide. There is little doubt but that the courts would accept this interest as a substantial one.
However, no matter how substantial an interest is in the abstract, the restriction must directly and materially advance that interest and must be “narrowly drawn.”21 “The regulation may not be sustained if it provides only ineffective or remote support for the government’s purpose.”22 In other words, the government may not justify a restriction on speech supported by “mere speculation or conjecture; rather, a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.”23
Thus, the question becomes whether the government can provide evidence that consumers are in fact being misled or deceived. There is no such evidence in the Congressional Record supporting the BRA. The little empirical evidence available on bankruptcy attorney advertising both supports and undermines this assumption. While it is true that many attorneys avoid using the term “bankruptcy” in their advertisements, research discloses that these attorneys are not trying to mislead consumers by luring them into their offices with the promise that there is an “easier out” than bankruptcy. Rather, consumer bankruptcy attorneys report that they avoid the term because consumers already have so many negative and false beliefs about bankruptcy that they are reluctant to seek it as a solution.24 The risk that consumers would approach an attorney for assistance with debt restructuring and be unaware that the attorney may, if appropriate, counsel bankruptcy seems a slim risk indeed.
Even if there are situations in which debtors may be confused or deceived about the nature of advertising offering assistance with debt relief, the Court has held that advertising restrictions must be “narrowly drawn”25 to the proffered justification. For example, many states require disclaimers when an advertised specialization is not certified by the state bar. But at least one court has struck down as too broad a requirement that a lawyer advertising a limited practice must include a statement that he is not a certified specialist.26
If you challenge these restrictions, you might argue that the new “debt relief agency” provisions do not directly and materially advance the interest in protecting consumers. You may argue that the required advertising statements will actually create more confusion among debtors seeking assistance because there are many instances in which the required statement does not accurately describe the attorney’s services. Because the overbreadth doctrine does not apply to commercial speech,27 you cannot bring facial challenges to the regulation but must show that, in your practice, the regulation is not narrowly drawn to advance the government interest.
Some attorneys might argue that the regulation actually requires them to make inaccurate or confusing statements in their advertising. Entities that represent creditors might be deemed debt relief agencies under the broad language of the provisions. Clearly, these creditors’ lawyers will have a strong argument that their First Amendment rights are violated when they have to make the false statement, “We are a debt relief agency. We help people file for bankruptcy.” The statement would be obviously inaccurate for any attorneys who provide information about bankruptcy when representing clients in other matters—for example, divorce, property transactions or business advice. In light of the Supreme Court’s decisions in other attorney advertising cases,28 any compulsory disclosures are of questionable constitutionality, especially when the government is requiring false statements.
Any attorney might claim that the required “debt relief agency” label is inaccurate and confusing. The BRA fails to distinguish between attorneys and non-attorneys providing bankruptcy services. Yet under current law, only attorneys are permitted to give legal advice, file pleadings, or represent debtors in bankruptcy hearings. Also, unlike non-attorney bankruptcy petition preparers, only attorneys are licensed by the state in which they practice, bound by ethical requirements, and subject to discipline by the courts in which they practice. Finally, only communications between debtor and attorney are protected by the attorney-client privilege. As a result, the provisions are likely to confuse the public, since both attorneys and non-attorney bankruptcy petition preparers are required to use identical language to advertise themselves as “debt relief agencies.”
Attorneys should carefully examine their state’s advertising regulations to determine whether advertising as a “debt relief agency” generates additional disclaimer requirements.
II. BRA’s Prohibitions on Attorney Advice
When counseling clients, the BRA requires you to make some statements and prohibits others. These restrictions on advice strike even closer to the core of an attorney’s First Amendment rights than do the advertising regulations. New Code §§ 527 and 528 require disclosures and statements to be made by a debt relief agency.29 Within three business days of first offering to provide bankruptcy advice to an “assisted person,” the debt relief agency must provide a clear and conspicuous written notice of a number of things relating to a contemplated bankruptcy filing. However, as we’ve seen, you may be deemed a DRA even if you are simply advising individuals about bankruptcy in situations in which your client would not be filing bankruptcy. In these situations, the required disclosures are irrelevant and inaccurate at best, if not affirmatively misleading and confusing.30
Worse, Code § 526 imposes restrictions on the kind of advice you can provide. Much of this prohibits specific misrepresentations,31 adding nothing to the constraints on attorney speech that already exist under the rules of professional conduct.32
One provision, however, specifically prohibits advice to a client that would be accurate, legal, and appropriate—indeed, this may be information that any competent attorney would consider essential to ensuring that the client is fully informed.33 Code § 526(a)(4) forbids the attorney from advising a client to incur any debt in contemplation of the bankruptcy.34 The prohibition directly regulates the content of speech by lawyers to their clients.
This prohibition is particularly troubling when it might be completely legal and even desirable for the client to incur this debt. Suppose your client wants to obtain a mortgage or refinance an existing mortgage to obtain a lower interest rate. Suppose your client intends to pay this debt, even if he files for bankruptcy. He may intend to keep all payments fully current and to reaffirm the debt once the case is filed. Under the BRA, you are arguably required to discourage the client from incurring this debt and clearly may not suggest this as a possible means of achieving the client’s goals.
You can’t even advise your client about ways to pay your fee. Most of an attorney’s fee for handling a Chapter 13 case is paid over time through the Chapter 13 plan. But that means that at the time the case is filed, the client has incurred additional debt in contemplation of filing a bankruptcy case. Indeed, this debt was specifically incurred for the purpose of paying the fees of the attorney filing the case. Under the BRA, you are prohibited from advising a client to take this appropriate, legal, and helpful approach to paying for your fees.
If you seek to challenge these restrictions on your advice-giving, you will have sound First Amendment precedent and public policy arguments on your side. The Supreme Court has been very protective of the First Amendment rights of attorneys to advise and zealously represent their clients.35 Unlike the regulation of advertising, these regulations on your advice to clients are content-based restrictions of speech that will be reviewed with strict scrutiny. In Turner Broadcasting System v. FCC,36 Justice Kennedy, writing for the majority, noted that “[g]overnment action that stifles speech on account of its message, or that requires the utterance of a particular message favored by the Government, contravenes this essential [First Amendment] right.”37 Justice Kennedy explained, “For these reasons, the First Amendment, subject only to narrow and well-understood exceptions, does not countenance governmental control over the content of messages expressed by private individuals.”38
The BRA restrictions prevent lawyers from giving important, lawful information to their clients; these restrictions cannot be reconciled with the First Amendment. However, while you may succeed in having a court declare this provision unconstitutional, it will likely be as the BRA is applied, rather than on its face. In recent years, the Court has not readily upheld facial challenges to the constitutionality of federal laws.39 The Court has said that a facial challenge requires demonstrating that all applications of the law would be unconstitutional.40 That is not likely with regard to these provisions of the BRA.
Instead, courts are likely to hold that it is unconstitutional to prohibit lawyers from giving truthful, lawful information to their clients, and that it is unconstitutional to require attorneys to put false information in their advertisements. Nonetheless, for most of your representations, that will provide the freedom you need to continue to competently represent your clients.
As the BRA is implemented and its provisions are litigated, a plethora of constitutional issues will be raised.41 For attorneys, the liability provisions are clearly subject to constitutional challenge as a violation of the First Amendment. These liability provisions present grim choices: don’t talk bankruptcy with your client and thus limit the information and representation you can provide; ignore the speech restrictions of the BRA and face a host of penalties; or challenge the act as unconstitutional. It seems that the shared interest of the profession would favor attorneys taking this last approach.
1. S. 256, Pub. L. No. 109-8, 119 Stat. 23 (2005). Unless otherwise indicated, citations to the Bankruptcy Code (the Code) are to 11 U.S.C. §§ 101 et seq., as amended by the BRA.
2. For a more comprehensive analysis of all of these constitutional issues, see Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. BANKR. L.J. 571 (2005).
3. “Bankruptcy assistance” means any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors’ meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding under this title. BRA Section 226(a)(2), adding Code § 101(4A).
4. “The term ‘assisted person’ means any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $150,000.” BRA Section 226(a)(1), adding Code § 101(3).
5. Code § 101(12A), added by BRA Section 226(a)(3), defines a debt relief agency as “any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under section 110,” subject to certain exclusions.
6. For a more detailed discussion of this problem, see Chapter 4.
7. BRA Section 229, adding Code § 528(a)(4) & (b)(2)(B).
8. Bates v. State Bar of Arizona, 433 U.S. 350, 356 (1977).
9. “Advertising that is false, deceptive, or misleading of course is subject to restraint. Since the advertiser knows his product and has a commercial interest in its dissemination, we have little worry that regulation to assure truthfulness will discourage protected speech.” Id. at 383 (citation omitted).
10. Id. at 384.
11. 447 U.S. 557 (1980).
12. Id. at 566.
13. Fla. Bar v. Went For It, Inc., 515 U.S. 618, 624-25 (1995); see also Rubin v. Coors Brewing Co., 514 U.S. 476, 485 (1995) (deeming only one of the government’s proffered interests “substantial”).
14. Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447, 460 (1978); Fla. Bar v. Went For It,
515 U.S. 618, 624 (1995).
15. Id. But see Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985) (noting that the state has a substantial interest in ensuring dignified behavior in the courtroom, but that the state’s interest in the protection of the dignity of the legal profession was not substantial enough to justify restricting free speech rights under the First Amendment).
16. In contrast to advertising restrictions, restrictions on face-to-face solicitation are
often justified on grounds that consumers are less likely to make informed choices and more likely to succumb to “fraud, undue influence, intimidation, overreaching, and other forms of ‘vexatious conduct,’ by attorneys soliciting employment.” Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447, 460 (1978); moreover, solicitation is usually private and therefore more difficult to police. These concerns have provided the basis for courts to approve more expansive regulation and even flat bans on this form of commercial speech. Fla. Bar
v. Went For It, Inc., 515 U.S. 618, 624-25 (1995). The BRA’s advertising restrictions do not appear to be directed toward in-person solicitation and its related governmental interests.
17. Bates at 375.
18. Id. at 384.
19. In re R.M.J., 455 U.S. 191, 201 (1982).
20. Leoni v. Cal. State Bar, 39 Cal. 3d 609, 704 P.2d 183, 217 Cal. Rptr. 423 (1985), appeal dismissed, 475 U.S. 1001 (1986).
21. See R.M.J., 455 U.S. at 203 (holding that in order for a state to regulate nonmisleading attorney advertising, the state must assert a substantial interest and the interference with speech must be in proportion to the interest served). The Court also noted that “[a]lthough the potential for deception and confusion is particularly strong in the context of advertising professional services, restrictions upon such advertising may be no broader than reasonably necessary to prevent the deception.” Id. See also Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626 (1985) (indicating that attorney advertising was covered by the doctrine that commercial speech that is not false or deceptive and does not concern unlawful activities may be restricted only in the service of a substantial governmental interest, and only through means that directly advance that interest); Shapero v. Ky. Bar Ass’n, 486 U.S. 466 (1988) (observing that state regulation of lawyer advertising may extend only as far as the interest such regulation serves).
22. Central Hudson Gas & Electric Corp., 447 U.S. at 564.
23. Edenfield v. Fane, 507 U.S. 761, 770-71 (1993), citing Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 648-49 (1985).
24. Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501, 553-54 (1993) (noting that on balance, most clients come to bankruptcy attorneys with negative misinformation about bankruptcy, often conveyed to them by bill collectors. “Many clients come with ‘foggy ideas,’ as one lawyer put it, or with outright misinformation, most commonly obtained from creditors who have tried to scare debtors about bankruptcy.”).
25. See In re R.M.J. 455 U.S. 191, 203 (1982) (holding that in order for a state to regulate non-misleading attorney advertising, the state must assert a substantial interest, and the interference with speech must be in proportion to the interest served). The Court also noted that “[a]lthough the potential for deception and confusion is particularly strong in the context of advertising professional services, restrictions upon such advertising may be no broader than reasonably necessary to prevent the deception.” Id. See also Zauderer v. Office of Disciplinary Counsel of Supreme Court, 471 U.S. 626 (1985) (indicating that attorney advertising was covered by the doctrine that commercial speech that is not false or deceptive and does not concern unlawful activities may be restricted only in the service of a substantial governmental interest, and only through means that directly advance that interest); Shapero v. Ky. Bar Ass’n, 486 U.S. 466 (1988) (observing that state regulation of lawyer advertising may extend only as far as the interest such regulation serves).
26. Spencer v. Hon. Justices of the Sup. Ct. of Pa., 379 F. Supp. 880 (E.D. Pa. 1984). See also Lyon v. Ala. State Bar, 451 So. 2d 1367 (Ala. 1984), in which the Alabama Supreme Court reviewed the state requirement that attorneys include the following disclaimer in their advertising: “No representation is made about the quality of legal services to be performed or the expertise of the lawyer performing such services.” The court upheld the constitutionality of this disclaimer as advancing a substantial interest in preventing the public from being misled. Accord, Mezrano v. Ala. State Bar, 434 So. 2d 732 (Ala. 1983). See generally 81:401 ABA/BNA LAWYERS MANUAL ON PROFESSIONAL CONDUCT, Advertising and Solicitation, Restrictions and Disclaimers (2003).
27. Village of Hoffman Estates v. Flipsides Hoffman Estates, Inc., 455 U.S. 489, 496–97 (1982) (overbreadth does not apply in commercial speech cases).
28. See discussion of R.M.J., above at note 21.
29. For more information on the required and prohibited communications, see Chapters 9 and 11.
30. For example, the DRA must provide the assisted person with a clear and conspicuous written notice that all information required to be provided by the assisted person during a bankruptcy case must be complete, accurate, and truthful; that all assets and liabilities must be completely disclosed; that “the replacement value of each asset as defined in section 506 must be stated in those documents where requested after reasonable inquiry to establish such value”; that current monthly income and disposable income are required to be disclosed after reasonable inquiry; that information an assisted person provides during a case may be audited; and that failure to provide such information may result in dismissal of the case or criminal sanctions. BRA Section 228(a), adding Code § 527(a)(2).
31. Code § 526(a)(1) prohibits a debt relief agency from failing to perform any service that it had informed the assisted person that it would provide in connection with a case or proceeding under Title 11. Section 526(a)(2) prohibits a debt relief agency from making any untrue or misleading statement, or advising any assisted person to make any such untrue or misleading statement. Section 526(a)(3) prohibits a debt relief agency from misrepresenting to any assisted person the services that the agency will provide or the benefits and risks from being a debtor in a bankruptcy case.
32. Attorneys are prohibited from engaging in “conduct involving dishonesty, fraud,
deceit or misrepresentation.” ABA MODEL RULES OF PROF’L CONDUCT R. 8.4(c) (2005).
33. An attorney is required by the rules of professional conduct to “explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.” ABA MODEL RULES OF PROF’L CONDUCT R. 4.1(b) (2005).
34. BRA Section 227(a), adding Code § 526(a)(4) (a debt relief agency shall not “advise an assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title”).
35. Legal Servs. Corp. v. Velazquez, 531 U.S. 533, 548-49 (2001).
36. 512 U.S. 622 (1994).
37. Id. at 641.
39. Sabri v. United States, 541 U.S. 600, 124 S. Ct. 1941, 1948-49 (2004).
40. United States v. Salerno, 481 U.S. 739 (1987) (“A facial challenge to a legislative Act is, of course, the most difficult challenge to mount successfully, since the challenger must establish that no set of circumstances exists under which the Act would be valid. . . . [W]e have not recognized an ‘overbreadth’ doctrine outside the limited context of the First Amendment.”) (due process challenge to the Bail Reform Act).
41. For discussion of the pending cases, see Chapter 9.