A bankruptcy lawyer does not violate Section 526(a)(4) by advising a client to pay a pre-filing retainer by credit card, according to District Judge Paul G. Byron of Orlando, Fla.
Added along with the amendments in 2005, Section 526(a)(4) prohibits a “debt relief agency” from advising a client “to incur more debt in contemplation of such person” filing a bankruptcy petition.
A man consulted with an attorney about filing a chapter 7 petition. The bankruptcy lawyer and the client signed a retention agreement calling for the client, in advance of filing, to pay a $1,700 retainer by using his credit card over about four months.
Purporting to represent a class, the client filed a lawsuit in Judge Byron’s court, alleging that the bankruptcy lawyer violated Section 526(a)(4). Before starting the class action, the client hired another lawyer to file and prosecute his bankruptcy.
In his Jan. 24 opinion, Judge Byron rejected the client’s argument that no improper motive is required before establishing a violation of the section.
Judge Byron reached his conclusion by extrapolation from Milavetz Gallop & Milavetz v. U.S., 559 U.S. 229 (Sup. Ct. 2010).
In addition to holding that lawyers are “debt relief agencies” and that the section in large part deals with commercial speech, Judge Byron said the high court “adopted a narrow reading of the provision.” He said the Supreme Court distinguished between “prudent advice” and advice that violates the statute. “In other words,” he said, Section 526(a)(4) allows “advising a debtor to incur additional debt for a ‘valid purpose.’”
Because lawyers in Florida can take payment via credit card and bankruptcy lawyers customarily require payment in advance, Judge Byron held that “mere advice to use a credit card” does not state a claim for violation of Section 526(a)(4), “without more.”
The opinion is Caldwell v. Kaufman Englett & Lynd PLLC, 16-662 (M.D. Fla. Jan. 24, 2017).