Bankruptcy and Supreme Court

Today the US Supreme Court heard oral arguments in two major cases dealing with bankruptcy law. The first, Milavetz v. US, deals with 11 USC § 526(a)(4) of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which places restrictions prohibiting certain bankruptcy professionals including attorneys from advising consumer debtors “to incur more debt in contemplation of such person filing a case under this title”. Counsel for the petitioner law firm argued that the provision is unconstitutional under the First Amendment because it proscribes truthful information about entirely lawful activity and it harms the client. The lower court’s ruling by Judge Lavenski R. Smith called that part of section 526(a)(4) "unconstitutionally overbroad" and a violation of the First Amendment. The provision "prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice". Another federal district court in Hartford, Conn., came to the same conclusion as the 8th Circuit, holding in Connecticut Bar Association v. U.S. that "section 526(a)(4) is overbroad because it prohibits attorneys from advising their clients to incur any kind of debt prior to filing for bankruptcy, including debts that are legal and desirable in certain instances." Transcripts of the oral argument are available here.

In the second case, United Student Aid Funds, Inc. v. Espinosa, the Court heard arguments (transcripts of which are available here) on whether a debtor may obtain a discharge of a student loan by including it in a Chapter 13 plan if the creditor fails to object after notice of the proposed plan. The petitioner debt collector appealed a decision from the US Ninth Circuit Court of Appeals which held that student loans can be discharged within a Chapter 13 plan if the creditor receives notice of the plan and fails to object. The ruling held that creditors in the business of administering student loans are unlikely to be misled by customary bankruptcy procedures and "crafty student debtors," ruling that bankruptcy courts have "no business" interfering in such procedures. Petitioner argued that Counsel for the US argued as amicus curiae on behalf of the petitioner. Counsel for the respondent debtor argued that "it would be very, very upsetting to the bankruptcy jurisdiction, exceedingly upsetting to make a very broad exception to finality."

Brooklyn Law School students may want to look at the library’s large collection of bankruptcy related material including The Modern Rules of Personal Finance for Professionals by Susan A. Berson (Call #HG179 .B47 2008).