The flat prohibition on attorneys advising clients to incur new debt in contemplation of bankruptcy is unconstitutional, says the 8th Circuit Court of Appeals.  Thank you.

Hostility to bankruptcy lawyers (and debtors) permeates the “new” bankruptcy law.  This particular provision required lawyers to identify themselves as “debt relief agents” in advertising and tried to prevent lawyers from pointing out ways in which a new loan or resort to credit might benefit the client in legitimate ways.

I’m now free to tell the client openly that if you have no loan on your car, under the present BAP decision on the application of the means test, you lose the “ownership allowance” expense.  That allowance in California is $489 a month.  If you have a loan secured by the car, you get the allowance, regardless of the balance owed on the car.

I have long wanted to tell my clients that it makes sense to borrow against your car for any purpose in order to get the benefit of the ownership allowance.  Borrow to pay for your bankruptcy, borrow to put money in an IRA, or to get health insurance, or your car tuned up.  Whether the loan originated in the purchase of the vehicle or for some other purpose, the existence of the lien entitles one to the allowance according to the 9th Circuit BAP.

Often, my clients are driving junker cars. Some have respectable credit scores, although their balance sheets are a mess.  A replacement vehicle  will give them reliable transportation going forward.  Yet Congress wanted to limit my ability to discuss the range of options with my client.  Somehow, Congress seems to have a slippery hold on the truths found in the First Amendment.