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Milavetz, Gallop & Milavetz v. United States

Supreme Court Rules That Bankruptcy Act Restricts Attorneys Advising Clients Facing Economic Crisis


Older people are the fastest-growing age group filing for bankruptcy. Bankruptcy filings among people 55 and older have risen sharply, as older people struggle with higher medical bills and stagnant incomes. Older people are more likely to incur high medical costs and become at risk of medical bankruptcy. According to a study based on 2007 data, a majority (62.1 percent) of all bankruptcies had a medical cause. Three-quarters of these medical debtors had health insurance. Even for people with Medicare, out-of-pocket costs related to chronic or sudden illnesses can be high in comparison to their income, especially when considering that Medicare HMOs are reluctant to pay for many treatments.

With limited job opportunities and high medical costs, older people may have more difficulty paying debts or recovering financially if they file for bankruptcy, which is designed to restructure debt to allow financially responsible people to repay their debts in spite of having suffered economic misfortune. Prior to the BAPCPA, attorneys often advised their clients to refinance a mortgage or borrow money from a relative to cover legal fees before filing for bankruptcy.

As interpreted by the government, the advice prohibitions at issue create a no-win scenario that harms consumers who need competent legal advice and access to information about the bankruptcy process, maintaining their economic security and accessing health care. Indeed, an attorney covered by the debt relief provisions would even be prohibited from providing standard legal advice, such as suggesting that a client borrow money in order to repay debt, pay for competent legal advice on any topic, or obtain needed health care. As a result, people will be less informed about the bankruptcy process and more vulnerable to fraud.

AARP’s brief in Milavetz (filed in conjunction with two bar associations and the Brennan Center for Justice) pointed out that statutory construction and legislative history of BAPCPA indicate that the phrase “debt relief agencies” was intended to apply to nonattorney bankruptcy professionals. If interpreted to include attorneys, the definition of “debt relief agency” runs afoul of congressional intent, the brief argued, in addition to being illogical. For example, an attorney already retained by a client would be required by one provision that applies to debt relief agencies to inform a client that he/she has the right to retain an attorney.

What’s at Stake

The Supreme Court ruled that Congress clearly intended to include attorneys in the definition of “debt relief agencies,” but also ruled that the prohibitions on speech were limited to “advising an assisted person to incur more debt when the impelling reason for the advice is the anticipation of bankruptcy.” This means that attorneys are still free to counsel their financially strapped clients on debt restructuring, options and consequences.

“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,” the Court ruled. The BAPCPA “requires professionals only to avoid instructing or encouraging assisted persons to take on more debt in that circumstance.”

While not adopting AARP’s position, the Court’s ruling clarifying the scope of the advice impacted by the BAPCPA will permit attorneys to give accurate and lawful advice on a wider range of subjects than many attorneys had felt free to deliver under the statutory language.

Case  Status
Milavetz, Gallop & Milavetz v. United States was decided by the U.S. Supreme Court.

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Our legal advocacy initiatives  - conducted by AARP Foundation Litigation (AFL) - reflect more than 15 years of work in federal and state courts across the country. Through our efforts, we support the Foundation’s four priority areas: Hunger, Income, Housing and Isolation, and ensure that those 50 and older have a voice in the laws and policies that affect their daily lives.