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Court Moves To Restrict Advice About Incurring Debt Before Bankruptcy

Posted By admin || 23-Jan-2009

U.S. Circuit Court of Appeals ruled in Hersh v. United States, No. 07-10226 that attorneys are included in the bankruptcy section 101(12A)'s definition of "debt relief agency" and that Section 527(b)'s disclosure requirements regarding advice to incur debt before bankruptcy are constitutional. The court's recent action reversed a lower court's ruling that the bankruptcy section was unconstitutional and restricted 1st amendment rights.

The new ruling asserts that the bankruptcy section is there to protect the bankruptcy system from abuse and does not unduly burden the attorney-client relationship or hinder a client's ability to file bankruptcy. According to the court, the bankruptcy section is mostly concerned with advice that encourages debtors to take on new debt when they are "in contemplation of" filing bankruptcy or encouraging debtors to incur debt to pay attorney fees or bankruptcy filing fees.

Unfortunately, some unscrupulous bankruptcy attorneys are improperly advising debtors to incur debt before filing bankruptcy and creating bigger problems for themselves and their clients. This is why it is important to work with bankruptcy attorneys who have a clear track record and ethics. No professional bankruptcy attorney would advise his client to incur debt in anticipation of filing for bankruptcy, doing so is fraud.

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