The Supreme Court ruled that a federal law that prohibited bankruptcy attorneys from telling clients who are contemplating bankruptcy to take on more debt is not an unconstitutional restriction on the free-speech rights of lawyers. The court further clarified that “Attorneys may give their clients any advice that does not lead to an abuse of the bankruptcy system, the court ruled unanimously” in an opinion written by Justice Sonia Sotomayor. Many bankruptcy attorneys opposed the restrictive law because it seemed to restrict a bankruptcy attorney’s ability to give honest, unfettered and candid advice. However, Justice Sotomayor insisted that it is understood that sometimes it may be wise for a debtor to take on more debt before filing bankruptcy.
“Advice to refinance a mortgage or purchase a reliable car prior to filing because doing so will reduce the debtor’s interest rates or improve his ability to repay is not prohibited.”
She added: “It would make scant sense to prevent attorneys and other debt relief agencies from advising individuals thinking of filing for bankruptcy about options that would be beneficial to both those individuals and their creditors.”
It should be added that taking on more debt before filing bankruptcy with the sole intention of not paying it back is a violation of the bankruptcy laws. For example, charging up thousands of dollars in credit card debt knowing that you will file bankruptcy and discharge that credit card debt is an abuse of the bankruptcy system. But refinancing your home, which you intend to keep, right before filing bankruptcy may not be considered a violation of the bankruptcy laws.