The U.S. Supreme Court ruled that federal bankruptcy law restricts some advice lawyers can give financially troubled clients. The Court noted, however, that the scope of the prohibitions in the law limit only specific types of advice.
AARP had filed a friend-of-the-court brief urging the Court to hold unconstitutional governmental restrictions on legal advice needed by people who may file for bankruptcy.
When members of Congress sought to combat what they saw as a growing trend in advising people how to fraudulently shelter assets before filing for bankruptcy, they imposed new restrictions on the activities of “debt relief agencies.” The federal Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) did not define “debt relief agencies.” The federal government has since defined it as including attorneys who give legal and financial advice to people in financial distress.
A number of attorneys sued to block the restrictions from being applied to them, arguing they chill the free exchange of information between attorneys and their clients that is the underpinning of the American legal system, in violation of the First Amendment.
At stake in Milavetz, Gallop & Milavetz v. United States was the ability of people to find and utilize the advice of an attorney about any number of financial matters. In particular, for older people this case impacted attorney communications and advice about such topics as medical expenses, employment law, estate planning, charitable contributions, family law, social security claims, changes of residences, care of children and grandchildren, and more for which the lawyer may — or should — mention or discuss the consideration of bankruptcy under chapter 7, 11 or 12 as part of possible solutions to the legal problem that is the subject of inquiry.
Because of the law, even attorneys who are primarily engaged to assist with nonbankruptcy financial planning felt they might be required to withhold lawful and beneficial legal advice about financial planning questions. For example, one attorney noted he felt he could not tell a woman who could not afford needed cancer testing that she could pay for it with newly acquired debt. Another attorney recalled seeking to advise a client who was reduced to eating cat food in order to save money, but was hamstrung by the restrictions from pointing out legitimate ways the client could have accessed money for basic necessities.
The issue in this case is becoming increasingly important for older people, as is bankruptcy in general, as the brief filed by attorneys with AARP Foundation Litigation pointed out. Older people are increasingly entering their retirement years with significant debt and their investments have disappeared. They may have lost their jobs or suffered a health concern that has left them financially strapped. Those on a fixed or limited income are especially vulnerable when faced with unexpected costs, such as those precipitated by a health crisis. They need frank and helpful advice from attorneys regarding their financial, health care, and family and estate planning matters to preserve their hard-earned assets and provide for their basic necessities in their remaining years.