Attorney Loses Challenge to Bankruptcy-Abuse Law

(CN) - The 5th Circuit upheld a federal law prohibiting attorneys from advising clients to incur debt before filing for bankruptcy.

Judge Garwood of the New Orleans-based federal appeals court held that attorneys can qualify as "debt-relief agencies," but overturned the district court's ruling that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 violates the U.S. Constitution.

The law prohibits debt-relief agencies from advising clients to incur debt before filing for bankruptcy. Texas attorney Susan Hersh argued that the law violated her First Amendment rights to free speech and chilled the attorney-client relationship.

"Congress has an interest in preventing abuse of the bankruptcy system by both the debtors who incur debt just before filing for bankruptcy and by the people who advise them to do so," Garwood ruled.

Such a debtor "is not one of the honest but unfortunate debtors the bankruptcy system is designed to protect," the judge added.

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