Federal Judge Strikes Down Part of New Bankruptcy Law

MINNEAPOLIS – A federal judge last week struck down as unconstitutional several provisions of last year's federal bankruptcy law that designates attorneys as debt relief agents, which effectively prevents them from advising clients to take on new loans to pay off their debts. In his ruling, Judge James Rosenbaum wrote that three sections of the new law violate free speech rights under the First Amendment. In addition, the Judge found the debt relief agency provisions of the law inapplicable to attorneys."If debt relief agency sections apply to attorneys, it means Congress has taken upon itself the authority to determine the advice attorneys can give their clients and what attorney advertisements must say, thereby infringing on the state's traditional role of regulating attorneys," wrote Rosenbaum wrote. The bankruptcy law refers to debt relief agents broadly as anyone who gives advice to people seeking bankruptcy protection. It forbids such agents from advising people to take on new debt, such as a consolidation loan, to pay off old loans. Attorneys who have challenged the law say this provision limits their ability to counsel their clients. The ruling makes it likely that Congress will revisit bankruptcy reform again next year.