In a case recently decided unanimously by the United States Supreme Court, Milavetz v. United States, and written by the new Justice, Sonia Sotomayor, it was decided that a new bankruptcy law may not restrict lawyers from giving full advice, including advice to take on more debt, to clients. The decision, while narrowly written, was made under the right to free speech. When clients see their personal bankruptcy lawyer they need “unfettered, candid advice” which may include taking on more debt through a mortgage or motor vehicle loan.
The law, which has been in effect since October 2005, defines lawyers as “debt relief agencies.” The law states that debt relief agencies cannot advise debtors to take on more debt. A law firm in Minnesota, Milavetz, Gallop and Milavetz, filed a lawsuit in federal court requesting declaratory relief allowing them, and by extension, all lawyers, to give them the right to fully advise clients of all rights. They argued under the freedom of speech argument and that the law was too narrowly written. Milavetz asked the Court to find that portion of the new bankruptcy law unconstitutional. In a unanimous decision, the Supreme Court held that while the law was not unconstitutional or in violation of the First Amendment, the law cannot prohibit attorneys from fully advising clients of their options prior to filing a bankruptcy. Those options could include taking on more debt so long as the advice was not in an attempt to defraud creditors.
For example, Justice Sotomayor wrote that “Advice to refinance a mortgage or purchase a reliable car prior to filing because doing so will reduce the debtor’s interest rates or improve his ability to repay is not prohibited.” She added: “It would make scant sense to prevent attorneys and other debt relief agencies from advising individuals thinking of filing for bankruptcy about options that would be beneficial to both those individuals and their creditors.”