The 8th U.S. Circuit Court of Appeals struck down a provision of the new bankruptcy laws that barred debtor's attorneys from giving their clients advice as to incurring new debts prior to the filing of their bankruptcy case. The appeals court, in a 2-1 decision, stated that the provision "prevents attorneys from fulfilling their duty to clients to give them appropriate and beneficial advice".
There are many instances in which it would be beneficial for a soon to be debtor to incur new debt. The two most common are the need to purchase a car or to refinance a house prior to the bankruptcy. If an individual files a Chapter 13, they will not be able to purchase a car or refinance house after their case is filed until they get permission from the bankruptcy court. The court permission could take months. Further, the Chapter 13 filing may make it impossible for the debtor to find a creditor willing to work with them. If the individual is filing a chapter 7, it may be advisable to purchase a car or refinance a house prior to filing. An experience attorney should be advised prior to incurring any debt before filing for bankruptcy. Remember, an attorney can not advise you to incur debt, but an experienced one will let you know what you could expect in the future bankruptcy case if debts are incurred.
The ruling by the 8th U.S. Circuit Court of Appeals is slowly opening the door for debtor's attorneys to start advising clients without fear of violating the new laws. The issue will probably make it to the Supreme Court in the near future. If it does, I surely hope that the Supreme Court will agree with the 8th circuit court of appeals. Soon to be Debtor's are already under enough stress and financial pressure, and keeping their attorney's from giving them sound advice as to incurring new debt could fuel the fire even more and make their soon to be bankruptcy a nightmare.
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Posted by: Bankruptcy Services | Friday, January 08, 2010 at 06:34 AM