(CN) – Citing a recent Supreme Court decision, the 2nd Circuit overturned a ruling for a bankruptcy lawyer who argued that a law banning him from urging clients to take on more debt before filing for bankruptcy violated his free-speech rights.
Attorney Zenas Zelotes challenged the bankruptcy provision in federal court, claiming it violated his First Amendment right to freely advise clients.
A federal judge in Connecticut found the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) overbroad and unconstitutional as applied to attorneys, because it prevents them from “advising clients to take lawful, prudent actions as well as abusive ones.”
While an appeal was pending, the Supreme Court interpreted the law as a narrow measure blocking attorneys and debt-relief agencies from encouraging clients to “load up” on debt before bankruptcy.
As the Manhattan-based appeals court explained, “The statute does not prohibit attorneys, or other debt relief agencies, from advising clients to incur more debt in advance of bankruptcy when doing so serves legitimate purposes, nor does BAPCPA restrict ‘frank discussion’ between attorney and client about incurring debt.”
The Supreme Court noted that the type of abuse banned by the provision “will generally consist of advice to ‘load up’ on debt with the expectation of obtaining its discharge.”
The 2nd Circuit reversed in light of the Supreme Court’s March ruling in Milavetz, Gallop & Milavetz v. U.S.