Decision: “Debt Relief Agencies” Permitted To Advising Clients To Incur Additional Debt
April 13, 2007
In the recently-decided case of Zelotes v. Adams, — B.R. —-, 2007 WL 638331 (D.Conn. 2007) a bankruptcy attorney brought a cause of action challenging the constitutionality of the Code provision added by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) prohibiting “debt relief agencies” from ever advising their clients to incur additional debt in contemplation of bankruptcy even when it might be lawful and prudent to do so. The District Court denied the motion to of the U.S. Trustee to dismiss. The United States Trustee then moved for reconsideration.
The court held that (1) the provision of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that prohibited “debt relief agencies” from ever advising their clients to incur additional debt in contemplation of bankruptcy even when it might be lawful and prudent to do so, such as when refinancing would reduce rate of interest that clients paid, was unconstitutionally overbroad as applied to bankruptcy attorneys; but that (2) the injunction would issue against enforcement of this provision only against plaintiff attorney.
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