Milavetz, Gallop & Milavetz, P. A. v. United States
Headline: Court rules attorneys who provide bankruptcy help are 'debt relief agencies', narrows prohibition on advising clients to incur debt to game bankruptcy, and upholds advertising disclosure rules for bankruptcy lawyers and consumers.
Holding: The Court holds attorneys who provide bankruptcy assistance are debt relief agencies, narrows the ban to advice driven by anticipated bankruptcy, and upholds advertising disclosures as applied.
- Requires bankruptcy-help attorneys to follow debt-relief rules and make disclosures.
- Bars advising clients to incur debt mainly to obtain a bankruptcy discharge.
- Affirms consumer-protection disclosures in bankruptcy-related advertisements.
Summary
Background
A law firm called Milavetz and others sued to challenge parts of the 2005 bankruptcy reform law that label some professionals "debt relief agencies," ban advising a client to take on more debt in contemplation of bankruptcy, and force certain disclosures in bankruptcy-related ads. The District Court sided with the firm on constitutional grounds, the Eighth Circuit split, and the Supreme Court agreed to decide the meaning and constitutionality of those provisions.
Reasoning
The Court first held that attorneys who give bankruptcy assistance fall within the statutory term "debt relief agency." On the rule that bans advice to incur more debt, the Court rejected the Eighth Circuit’s broad reading and narrowed the rule: it forbids advising a person to take on more debt when the advice is principally motivated by the expectation of filing for bankruptcy (the classic “load up” abuse). The Court did not strike the rule down as vague. On advertising, the Court applied the consumer‑protection standard used in Zauderer and upheld the requirement that debt-relief advertisers identify themselves and disclose that their services may involve bankruptcy, as applied to Milavetz.
Real world impact
The ruling means lawyers who help consumer debtors must follow the Act’s debt-relief rules and include the required disclosures in qualifying advertisements. Lawyers remain free to discuss and give ordinary financial advice unless the main purpose of that advice is to get a debt wiped out by imminent bankruptcy. The case was sent back to the lower courts for further proceedings consistent with these interpretations.
Dissents or concurrances
Two Justices wrote separately: Justice Scalia joined the judgment but criticized reliance on legislative history, and Justice Thomas joined most of the judgment but wrote separately about the disclosure standard.
Opinions in this case:
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