Yesterday, I was discussing a “Debt Relief Agency” as it is defined in the Bankruptcy Code. Part of the angst I have with the whole debt relief agency provisions is that I am – by definition – only a debt relief agencies to “assisted persons.” Debt relief agencies have certain specific obligations… but only to “assisted persons.” Before I continue writing, I’m going to take some aspirin; this analysis made my head hurt.
To summarize, under Section 526 of the Bankruptcy Code, when I am a debt relief agency… which as I have mentioned is only some of the time … I shall
- not perform a service that I told an assisted person I would do;
- not make a false or misleading statement or tell my assisted person to make a false or misleading statement… or one that “upon the exercise of reasonable care, should have been known by such agency to be untrue or misleading”;
- and not “advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title ….”
So I have this question: if the client and prospective debtor I am assisting is not an assisted person as is defined by the bankruptcy code, may I then advise that debtor to incur more debt in contemplation of bankruptcy without running afoul of Section 526?
That’s a good question. But did Milavetz answer it?
It does not seem so. First, in the holding noted on the case syllabus, it says that the Court held:
Section 526(a)(4) 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. [emphasis added].
Eh… that’s not what the code says.
Section 526 (a)(4) prohibits a debt relief agency from advising an “assisted person.” An assisted person is not a debtor because by definition, an assisted person “means any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $164,250” (see Section 101(3)). The term “debtor” by definition in the code, “means person or municipality concerning which a case under this title has been commenced.”
If Congress wanted an “assisted person” to be considered a “debtor” it could have easily written Section 101(3) to read that an “‘assisted person’ means any debtor with debts consist primarily of consumer debts and the value of whose nonexempt property is less than $164,250.” But that’s not what the law says.
My frustration with this seemingly sloppy reading of the code is amplified when I read the 8th Circuit Court of Appeals decision that was ultimately appealed to the US Supreme Court. There, the court said this:
Factual scenarios other than these few hypothetical situations no doubt exist and may further illustrate why incurring additional debt in contemplation of bankruptcy may not be abusive or harmful to creditors. Nonetheless, § 526(a)(4), as written, does not allow attorneys falling within the definition of debt relief agencies to advise assisted persons (or prospective assisted persons)-i.e. clients (or prospective clients) meeting the definition of assisted person-to incur such debt. Thus, § 526(a)(4) is not narrowly tailored nor narrowly and necessarily limited to prevent only that speech which the government has an interest in restricting. Therefore, we hold that § 526(a)(4) is substantially overbroad, and unconstitutional as applied to attorneys who provide bankruptcy assistance to assisted persons, as those terms are defined in the Code. [emphasis added].
See 542 F.3d 785, 793-794 (8th Cir. 2008).
It appears that the Supreme Court failed to fully distinguish the differences between “debtors” and “assisted persons.” Even if some of my colleagues argue that this is a distinction without a difference, that’s simply not what it says in the US Bankruptcy Code… and nothing in Milavetz suggests that the Court intended to look at it differently. So did the Supreme Court simply get it wrong?
Did the Supreme Court mean to say “assisted persons” when it referred to “debtors”? Or has the Supreme Court effectively declared that all “debtors” are “assisted persons”…even though that’s not what the US Bankruptcy Code says? And if the answer to that last question is a “yes”, has this Supreme Court effectively rewritten what Congress enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005?
See why my head hurts?
Related posts:
- The Peculiar Parallel of Debt Relief Agencies and Madonna
- Debt Relief Agencies… Part II
- “We Are A Debt Relief Agency…”
- NACBA Challenges New Bankruptcy Law
- The US Supreme Court Rules in United Student Aid Funds, Inc. v. Espinosa
Tags: attorney, Bankruptcy Abuse Prevention & Consumer Protection Act of 2005, BAPCPA, debt, Debt Relief Agencies, Supreme Court, Unexempt assets