No Constitutional Right to Counsel for Chapter 7 Debtor

In the case of In re Eagle, ___ F.3d ___, 2007 WL 2278902 (C.A.8(Ark.)), the court held that under the circumstances the Chapter 7 Debtor did not have a constitutional right to counsel. The Debtor had filed a pro se Chapter 7 case. As the Debtor failed to file the necessary schedules and statements, the court dismissed his case. The court granted the Debtor’s motion to reinstate his case and advised the Debtor to obtain counsel. In subsequent proceedings, the court sustained a Creditor’s exemption objection. The Debtor appealed the order sustaining the exemption objection.

The Court of Appeals held that the Debtor did not have a right to counsel as his physical liberty was not at issue in the bankruptcy case. Lassiter v. Dep’t of Soc. Servs. of Furham County, 452 U.S. 18 (1981). The court further noted that although it had no duty to do so, the court had advised the Debtor to obtain counsel.

The issue to use bankrutpcy estate funds to employ criminal counsel in a bankruptcy case was previously addressed in the Miami, Florida bankruptcy case of In re Duque, 48 B.R. 965 (DC Fla. 1984)(Hastings, J.). In this case involving an individual chapter 11 debtor, the District Court held that the Debtor did not under the circumstances have the right to use bankruptcy estate money to pay for his criminal counsel. The court set forth three underlying principles in its determination. First, the employment of special criminal counsel must be in the best interest of the estate. That is, there must be an actual need for the services based upon a actual not hypothetical or speculative threat to the estate or its property. Second, special criminal counsel must not be for the personal benefit of the debtor, but must be for the benefit of protecting the assets of the estate or furthering its interests. Third, potential violations of the debtor’s constituational rights posed by criminal investigations or prosecutions occurring after the filing are of concern to the criminal forum and not the bankruptcy court.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

BAPCPA’s Exemption Provisions Do Not Violate Uniformity Requirement

In the recent case of In re Urban, ___ B.R. ___, 2007 WL 431570 (Bkrtcy. D. Mont.), Judge Kirscher held that BAPCPA’s exemption provisions, which may require a debtor to claim the exemptions of a state other than that in which is he presently domiciled under certain circumstances, do not violate the US Constitution’s Bankruptcy Clause’s uniformity requirement.

The Court’s inquiry focused on whether the amendments made to section 522(b)(3) by BAPCPA, which in some circumstances requires the extraterritorial application of the exemption laws of a state other than that of the debtor’s present domicile, violate the uniformity requirement that appears in the US Constitution at Article I, Section 8, Clause 4. The Court noted that it was previously well-settled that the right of the states to opt out of the federal exemptions does not violate the uniformity requirement. In re Sullivan, 680 F.2d 1131 (7th Cir. 1982). The Court also noted that it was held early on that the uniformity requirement is “georgraphic”, that is the laws passed on the subject must be uniform throughout the United States but that uniformity is geographical and not personal. Hanover National Bank of the City of New York v. Moyses, 186 US 181 (1902).

The Supreme Court in Moyses applied this requirement by holding that a bankruptcy statute passes constitutional muster if the bankruptcy law treats the trustee, as a hypothetical judicial lien creditor, in the same fashion in the bankruptcy case as he would be treated outside of the case under state law. The Moyses Court also provided “additional language” that the general operation of the law is uniform although it may result in certain particulars differently in different states.

Judge Kirscher found that section 522(b)(3) as amended by BAPCPA does not violate the uniformity requirement. The Court based its holding on the “additional language” in Moyses coupled with language contained in later US Supreme Court decisions which held that Congress has the power to take into account differences that exist between different parts of the country and to fashion legislation to resolve geogrphically isolated problems.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

BAPCPA Provisions Held Unconstitutional

In the December 7, 2006 decision in the case of Milavetz, Gallop & Milavetz, P.A. vs. USA, 2006 WL 3524399 (D. Minn.) a Federal District Court in Minnesota found the section of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) containing advertising disclosure requirements [11 USC 528(a)(4) and 528 (b)(2)] and the section prohibiting “debt relief agencies” from advising client to incur more debt in contemplation of bankruptcy [11 USC 526 (a)(4)] to be unconstitutional as applied to attorneys.

The Court analyzed section 528(a)(4) and 528(b)(2) by applying “intermediate scrutiny” under which the government may only regulate truthful bankruptcy assistance advertisements if the regulation 1. directly advances 2. a substantial government interest and 3. is narrowly drawn. The Court found that these BAPCPA provisions failed all three parts of this intermediate scrutiny.

The Court found section 526 (a)(4) to be a content-based restriction on protected speech and found that it did not meet the “strict scrutiny” test. The Court explained that “Attorneys have a First Amendment right – let alone established professional ethical duty – to advise and zealously represent their clients”.

The Court further found that attorneys are beyond the scope of a BAPCPA “debt relief agency”. The Court stated that this view is support by the doctrine of constitutional avoidance under which the Court must opt for a construction that avoids grave constitutional questions. For these reasons, the Court held that the “debt relief agency” provisions of BAPCPA found in sections 526, 527, and 528 do not apply to attorneys.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983