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Attorney Organizations Challenge New Bankruptcy Law

By Staff

(AXcess News)New York- Lawyer organizations are challenging the new bankruptcy law, saying it illegally restricts the advice attorneys can give and makes it harder for clients tomaneuver throughthe bankruptcy system.

Thursday, a lawsuit was filed in US district court in Hartford, CT argues that the new bankruptcy law treats attorneys as if they were no more than unlicensed document preparers, which are requiredunder the new bankruptcylaw to tell clients not to go further in debt, giving specific advise only.

The lawsuit in Hartford's US district court claims the new bankruptcy law illegally hampers the attorney-client relationship. Car repairs, medical bills and court-ordered child support are listed in the lawsuit as examples of added debt that might keep clients working and out of jail. In some cases, lawyers say borrowing against a 401(k) retirement plan or accessing a home equity line of credit might make sense. But under the current bankruptcy law, attorneys are not permitted to advise their clients on matters like these.

"The statute injects the government directly into the heart of the attorney-client relationship in a way that would be both grave and unprecedented," the lawsuit states.

The Justice Department was looking into the lawsuit Friday morning.

The Connecticut Bar Association and the National Association of Consumer Bankruptcy Attorneys asked a judge to temporarily rule that attorneys are not covered by the provisions until the case is settled, AP reports.

Other provisions challenged in the lawsuit include requirements that agencies provide standardized legal advice forms and contracts for their clients and advertise themselves as "debt relief agencies." Attorneys say those restrictions should not apply to them.

No ruling has been made and no hearings have been scheduled.

The new law, the most sweeping overhaul of the U.S. Bankruptcy Code in a generation, took effect in October. It bars those with above-average incomes from Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances.

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