A recent decision from the U.S. District Court from the Northern District of Texas (Dallas Division) holds that Section 526(a)(4) of the amended Bankruptcy Code violates an attorney's First Amendment rights. The case is Hersch v. U.S., Civil action 05-2330. Judge David Godbey wrote the opinion. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA") and it became effective in October 2005, although certain provisions became effective sooner. The Plaintiff in this matter was Susan B. Hersh, a Dallas, TX attorney whose practice includes bankruptcy. She brought a cause of action against US Attorney General Alberto Gonzalez and Texas Attorney General Greg Abbott, as heads of the agencies charged with enforcing BAPCPA's provisions (collectively "Defendants" or the "Government"). Hersh sought declaratory judgement that BAPCPA Section 101 (defining attorneys as "debt relief agencies") does not apply to attorneys and also challenged the constitutionality of Sections 526(a)(4) and 527. Section 526(a)(4) states that a debt relief agency may not "advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in a case under this title". The Court found that this provision unconstitutionally restricts Hersh's speech. There is no question that this section restricts what an attorney can tell a client. But, in order to regulate speech, the regulation has to be (1) narrowly tailored to promote (2) a compelling government interest. US v. Playboy Entm't Group, Inc., 529 U.S. 803 (2000). The Court found that this section prevents lawyers from advising clients to take actions that are lawful, even under BAPCPA. The Court further states that taking on additional debt "in contemplation" of bankruptcy does not necessarily constitute abuse. The Court says that taking on more debt may be a prudent option for some people considering bankruptcy. As examples, it lists refinancing at lower rates to reduce payments or taking on secured debt such as a car loan that would survive bankruptcy and allow the debtor to continue to get to work. Section 526(a)(4) prevents attorneys from giving their clients their best advice. The Court found that this law is over-inclusive in at least two respects in that it prevents lawyers from advising clients to take lawful actions and extends beyond abuse to prevent advice to take prudent actions. Therefore, this section imposes restrictions that are beyond what is "narrow and necessary". The Court held that Section 527 which requires attorneys to provide "assisted persons" with written notice of specific information does not unconstitutionally compel speech. The Court reasons that the government clearly has a legitimate interest in attempting to ensure that a client is informed of certain basic information. The Court stated that the plain meaning of Section 101 of BAPCPA indicates that "debt relief agency" includes bankruptcy attorneys. Further, legislative history shows that Congress intended to include attorneys within the scope of the definition for "debt relief agency". Ray Copyright © All Rights Reserved