Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

The Attorney as “Debt Relief Agency”: A Bridge Too Far?

Are attorneys to be considered “debt relief agencies” under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and, if so, is the statute compatible with state regulation of the legal profession and attorneys’ freedom of speech? These are among the issues facing the 8th Circuit in a recent case on appeal from the District of Minnesota. 

The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) created a number of challenges and uncertainties in the interpretation, administration and application of the nation’s bankruptcy laws. Indeed, the legislation, which made literally hundreds of changes to bankruptcy law and procedure, has already created significant divisions of authority. One of the interpretive issues that has created considerable controversy and division in the courts is whether attorneys, and their firms, are “debt relief agencies” (DRAs) under the BAPCPA and therefore subject to heightened federal regulation.

The United States District Court for the District of Minnesota in Milavetz, Gallop & Milavetz P.A. v. United States, 355 B.R. 758 (D. Minn. 2006) joined a handful of other federal courts in finding that BAPCPA’s restrictions on the activities of DRAs do not apply to licensed attorneys. In a subsequent decision rendered against the government in the same case, the court ruled that “attorneys are relieved of any duties relating to BAPCPA-defined debt-relief agencies imposed by that statute.”1 The district court’s decisions in Milavetz have been appealed by the government to the United States Court of Appeals for the 8th Circuit, which heard oral argument on March 11, 2008. The 8th Circuit will be required to resolve the issue of whether “attorneys” are “debt relief agencies” and may be the first circuit court in the country to weigh in on the issue. The decision will hinge on the statutory language and may be guided by legislative history of the BAPCPA.

“Debt Relief Agency”

Sections 526, 527 and 528 of the Bankruptcy Code impose significant new restrictions and requirements on “debt relief agencies.”2 These statutes, among other things, require DRAs to enter into written contracts with “assisted persons,” disclose the extent of services provided and fees charged, satisfy specified performance and disclosure requirements, and maintain records for a period of time. DRAs are prohibited from advising assisted persons to incur additional debt in contemplation of bankruptcy and are required to clearly and conspicuously state in all advertising that their services contemplate bankruptcy. “The law therefore now contains provisions regulating the manner in which a ‘debt relief agency’ provides services to both potential and actual clients.”3 Failure to satisfy the extensive requirements imposed by the BAPCPA may subject DRAs to damages, fees, injunctive relief and other penalties.

Section 526 of the Bankruptcy Code sets forth limited safe harbors from strict compliance (or even compliance) with the statutes governing DRAs. The statute provides that Section 526 and related sections do not annul, alter, affect or exempt any DRA from complying with the requirements of state law, except to the extent that the law is inconsistent with the DRA provisions of the Bankruptcy Code.4 Section 526 also provides that the DRA provisions do not limit or curtail the authority or the ability of a state to determine and enforce the “qualifications for the practice of law” in that state or the authority or the ability of a federal court to determine and enforce the “qualifications for the practice of law” before that court.5

Legislative History

As its name suggests, one of the principal purposes of the BAPCPA was “bankruptcy abuse prevention.”6 The House report in fact characterizes the BAPCPA as a “civil enforcement initiative” that has “‘consistently identified’ such problems as ‘debtor misconduct and abuse, misconduct by attorneys and other professionals, [and] problems associated with bankruptcy petition preparers …’” as a principal motivating factor behind many of the changes to consumer bankruptcy.7

The legislative history to the BAPCPA reveals that the applicability of the DRA provisions to attorneys was certainly considered and debated during the pendency of the bankruptcy reform legislation. Senator Feingold (D-WI) in fact proposed an amendment to the bill, supported by the American Bar Association and the Federal Bar Association, which would have excluded attorneys from the definition of “debt relief agency.”8 Senator Feingold argued that requiring attorneys and their firms to label themselves as “debt relief agencies” would confuse the public more than protect it. In addition, Senator Feingold contended that subjecting attorneys to the DRA requirements would add very little to already existing laws that regulate attorneys and would impose a number of unnecessary burdens on the profession. However, the Senate did not adopt the amendment, further implying that Congress intended to include attorneys in the category of parties subject to the DRA provisions of the new legislation.

The House report’s discussion of the bill’s “Background and the Need for the Legislation” states that the goal of the BAPCPA includes “strengthening professionalism standards for attorneys and others who assist consumer debtors with their bankruptcy cases.”9 This clear statement certainly indicates that one of Congress’ articulated objectives in the BAPCPA was to improve not only the standards of professionals who generally provide assistance to consumer debtors in the field of bankruptcy, but more specifically to improve the standards of professional conduct of attorneys.

Attorney Accountability

As part of the comprehensive bankruptcy reform package enacted in 2005, Congress established new standards of professional conduct for consumer bankruptcy lawyers. Section 707 of the Bankruptcy Code, which embodies the “means test” and other provisions that have changed the dynamic of consumer bankruptcy, imposes new and specific requirements on debtor’s counsel. Consumer bankruptcy attorneys have affirmative statutory obligations (under penalty of sanction) that are new. The signature of an attorney on the bankruptcy petition constitutes a “certification” that the attorney has performed a “reasonable investigation” into the circumstances of the bankruptcy petition and, among other things, “determined” that the petition does not constitute an abuse of Chapter 7.10 Similarly, the attorney’s signature also constitutes a certification that the attorney “has no knowledge after an inquiry” that any of the information in the bankruptcy schedules is incorrect.11 An amendment to Rule 9011 of the Federal Rules of Bankruptcy Procedure also emerged from BAPCPA’s enactment to charge consumer bankruptcy lawyers with the responsibility of making a “reasonable inquiry to verify that the information contained” in the bankruptcy schedules is “well grounded in fact” and warranted by law.12

The certification and related requirements imposed by Congress on consumer bankruptcy lawyers are intended to increase attorney accountability as part of a comprehensive reform initiative designed to curb perceived abuse by debtors and their professionals. It is not at all a stretch to conclude that the DRA provisions of the BAPCPA, which subject those “providing legal representation” to debtors to new requirements, are meant to apply to debtor’s counsel.

Courts Disagree

Several federal court decisions since the enactment of the new bankruptcy laws address the uncertain role of attorneys as “debt relief agencies” under the BAPCPA. The United States Bankruptcy Court for the Southern District of Georgia in In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66 (Bankr. S.D. Ga. 2005), acting sua sponte at 9:35 a.m. on the date that BAPCPA became effective, was the first court to rule that attorneys admitted to the bar or admitted pro hac vice are not “debt relief agencies.” As such, they “are excused from compliance with any of those requirements or provisions so long as their activities fall within the scope of the practice of law.”13 Ironically, an appeal of the decision by the United States Trustee was ultimately dismissed by the district court because the opinion was issued when there was no “case or controversy” as would be required by Article III of the United States Constitution in order to afford standing for the appeal.

The bankruptcy court’s decision in In re Attorneys became precedent for the courts’ decisions in Milavetz, Gallop & Milavetz P.A. v. United States, 355 B.R. 758 (D. Minn. 2006) and in In re Reyes, 361 B.R. 276 (Bankr. S.D. Fla. 2007). While these courts acknowledged that the language used in the definition of “debt relief agency” is extremely broad, they noted the text of the operative statutes makes no direct reference to either “attorney” or “lawyer.” It does, however, specifically include the term “bankruptcy petition preparer” which, by definition, expressly excludes attorneys and their staffs. Additionally, all judges said they believed that Congress could not have intended the scope of the DRA statutes to encompass attorneys, as that would be inconsistent with the historical role occupied by states in regulating the practice of law and would be an unwarranted expansion of federal power.14 As noted by the court in Milavetz, “[i]f BAPCPA’s debt relief agency sections apply to attorneys, it means Congress has taken upon itself the authority to determine the advice attorneys can give their clients and what attorney advertisements must say, thereby infringing on the state’s traditional role of regulating attorneys.”15

The court in Milavetz noted that while the definitions that must be parsed to determine who is a “debt relief agency” might “at first glance” include attorneys, the DRA provisions themselves expressly leave it to the states “‘to determine and enforce qualifications for the practice of law.’”16 If attorneys are placed within the ambit of the definition, a conflict in the statutes would exist since, on the one hand, the states’ role in regulating the practice of law is reserved in the BAPCPA and, on the other hand, that role would be curtailed by superimposed federal regulation. In addition, the court in Milavetz, following the doctrine of constitutional avoidance (i.e., a construction in the context of statutory ambiguity that avoids constitutional questions), found that a number of the provisions of the BAPCPA applicable to DRAs would be unconstitutional if applied to attorneys—viz., provisions that restrict speech, such as the advertising disclosure requirements and limitations on the advice that can be provided to clients or prospective clients with respect to incurring additional debt in contemplation of bankruptcy.17

Despite the rulings of the courts in Milavetz, In re Attorneys, and Reyes a majority of the courts addressing the issue to date have concluded that compensated debtor’s counsel fall within the definition of “debt relief agency.”18 The district courts in Hersh v. United States, 347 B.R. 19 (N.D. Tex. 2006) and Olsen v. Gonzales, 350 B.R. 906 (D. Or. 2006) found certain DRA provisions overbroad and unconstitutional under the 1st Amendment as applied to attorneys, but nonetheless concluded that a reading of the text of the statute for its plain meaning indicates that the term “debt relief agency” includes consumer bankruptcy attorneys. The courts in Hersh and Olsen also concluded that BAPCPA’s legislative history provides a very strong indication that Congress had attorneys specifically in mind as the House report on the legislation mentions “attorney” 164 times. A number of other courts have similarly found, or assumed, that BAPCPA’s provisions regulating DRAs apply to attorneys.19

Deconstructing Definitions

The term “debt relief agency” is defined in the Bankruptcy Code as “any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer.”20 The plain and ordinary language of the definitions used by Congress inescapably encompasses compensated consumer bankruptcy attorneys and their law firms.21 Congress specified in the statute a fairly lengthy list of persons that are not considered to be “debt relief agencies.” Among the list of statutorily exempted parties are: any person who is an officer, director, employee or agent of a bankruptcy petition preparer or of any other person who provides bankruptcy assistance; a nonprofit organization exempt from taxation; a creditor of an assisted person to the extent involved in restructuring of any debt owed by the debtor to that creditor; a depositary institution; or an author, publisher, distributor, or seller of works subject to copyright protection under federal law when acting in that capacity.22 If Congress did not consider attorneys “debt relief agencies,” it would have been a simple matter to specifically exclude them in the list of parties exempt from the statue’s application—particularly in light of the articulated purposes of the reform legislation.

The Bankruptcy Code defines the terms “bankruptcy assistance” and “assisted person.” An “assisted person” is defined as “any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $164,250.”23 The term “bankruptcy assistance” is broadly defined as “any goods or services sold or otherwise provided to an assisted person with the express or implied purpose of providing information, advice, counsel, document preparation, or filing, or attendance at a creditors’ meeting or appearing in a case or proceeding on behalf of another or providing legal representation with respect to a case or proceeding” under the Bankruptcy Code.24 The breadth of the statute and the import of the specific inclusion of “legal representation” within the definition is unmistakable. Only attorneys, of course, can lawfully provide “legal representation.”

Focus on Language

The courts in In re Attorneys and Milavetz acknowledged that the statute’s reference to “providing legal representation” suggests a result that would include attorneys as DRAs. The In re Attorneys court nevertheless justified a departure from this plain language with the explanation that the phrase refers not to law practice by attorneys but, rather, the unauthorized practice of law by nonlawyers who provide legal advice, often to less educated and more vulnerable debtors.25 The notion that “providing legal representation” refers only to the unauthorized practice of law is simply not supportable by any common sense reading of the statute. Nor is such an interpretation compelled by traditional canons of statutory construction.

The court in Milavetz found what it perceived to be a “clear ambiguity” in the statutes in order to reach its conclusion since the DRA provisions of the BAPCPA preserve for the states the right and authority “to determine and enforce the qualifications for the practice of law.” The opposite is true. The fact that Congress provided for a preemption savings clause such that the DRA provisions of the BAPCPA do not limit or curtail the states’ authority to regulate the “qualifications” for the practice of law in fact supports the position that the DRA provisions apply to attorneys. It would hardly seem necessary for Congress to include any statutory reservation of state authority in the area of legal practice if the DRA provisions did not apply to attorneys in the first instance.

Moreover, the codified limitations in the statute that reserve for the states the authority to regulate the “qualifications” for legal practice are not inconsistent with the literal application of the statutory language. The court in In re Attorneys even acknowledged that the DRA provisions of the Bankruptcy Code “may in fact mirror the type of ‘best practices’ that attorneys should follow and may be consistent with attorneys’ pre-existing professional standards.”26


The rulings of the courts in Milavetz, In re Attorneys, and Reyes seem to be based more upon dissatisfaction with the perceived federal intrusion into areas that traditionally have been regulated by the states, rather than on literal construction of the text of the statute and appropriate consideration of the reform envisioned by Congress when it enacted the BAPCPA. To be sure, the additional burdens placed upon attorneys under the DRA provisions of the Bankruptcy Code are, if applicable, substantial. That result is, however, dictated by the language of the law Congress enacted and supported by its legislative history.

The United States Court of Appeals for the 8th Circuit in Milavetz will provide much needed appellate review of the issue of whether an attorney is a “debt relief agency.” The decision, regardless of the outcome, is important as it will undoubtedly impact the legal profession and the continued debate over the BAPCPA.

Milavetz, Gallop & Milavetz P.A. v. United States of America, 2007 WL 1227598 *1 (D. Minn. 04/19/07).

See 11 U.S.C. §§526-28.

3 George H. Singer, “The Year in Review: Case Law Developments under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” 29 Cal. Bankr. J. 37 (2007).

4 11 U.S.C. §526(d)(1).

Id. §526(d)(2).

See H.R. Rep. No. 109-31, pt. 1, at 2, reprinted in 2005 U.S.C.C.A.N. 88, 89 (indicating that Congress desired to “improve bankruptcy law and practice by restoring … integrity in the bankruptcy system”).

7 H.R. Rep. No. 109-31, reprinted in 2005 U.S.C.C.A.N. 88, 92 (emphasis added).

See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 151 Cong. Rec. S2306, S2316 (03/09/05). See also Letter from Robart D. Evans, Director, American Bar Association Governmental Affairs Office, to Members of the Senate (03/01/05), available at

See H.R. Rep. No. 109-31, pt. 1, at 5 & 17, reprinted in 2005 U.S.C.C.A.N. 88, 103.

10 11 U.S.C. §707(b)(4)(C).

11 Id. §707(b)(4)(D). Congress also imposed an additional certification requirement on consumer bankruptcy lawyers that represent debtors in connection with reaffirmation agreements. See id. §524(k)(5).

12 Fed. R. Bankr. P. 9011.

13 In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66, 71 (Bankr. S.D. Ga. 2005).

14 See Milavetz, Gallop & Milavetz P.A. v. United States, 255 B.R. 758, 768 (D. Minn. 2006) (appeal pending); In re Reyes, 361 B.R. 276, 279 (Bankr. S.D. Fla. 2007); In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66, 71 (Bankr. S.D. Ga. 2005).

15 Milavetz, 255 B.R. at 768.

16 Id. (quoting 11 U.S.C. §526(d)(2)(A)).

17 Id.

18 In re Irons, 379 B.R. 680, 685 (Bankr. S.D. Tex. 2007).

19 See, e.g., Zelotes v. Adams, 363 B.R. 660 (D. Conn. 2007); Zelotes v. Martini, 252 B.R. 17 (D. Conn. 2006); In re Irons, 379 B.R. 680 (Bankr. S.D. Tex. 2007); In re Robinson, 368 B.R. 492 (E.D. Va. 2007); In re Norman, 2006 WL 3053309 (Bankr. E.D. Va. 2006); In re Gutierrez, 356 B.R. 496 (Bankr. N.D. Cal. 2006); In re Mendoza, 347 B.R. 34 (Bankr. W.D. Tex. 2006).

20 See 11 U.S.C. §101(12A) (emphasis added).

21 Since the term “person” is defined in the Bankruptcy Code as an individual, partnership or corporation, see 11 U.S.C. §101(41), consumer bankruptcy law firms should also be considered “debt relief agencies” within the meaning of the legislation.

22 See 11 U.S.C. §101(12A) (A)-(E) (emphasis added).

23 Id. §101(3) (emphasis added). Cf. id. §104(a)(adjustment of dollar amounts).

24 See id. §101(4A).

25 In re Attorneys at Law and Debt Relief Agencies, 332 B.R. 66, 69 (Bankr. S.D. Ga. 2005).

26 Id. at 71 n.5.

GEORGE H. SINGER is a partner in the Minneapolis office of Lindquist & Vennum PLLP and practices in the areas of corporate and commercial law, including bankruptcy. He formerly served as an attorney on staff with the National Bankruptcy Review Commission.

WHITNEY R. COHEN is a student at the University of Wisconsin-Madison, majoring in Legal Studies and Political Science. She will be attending the University of St. Thomas School of Law in the fall of 2008.

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