In In re Hersh, No. 07-10226, (5th Cir. 12/18/2008) the Fifth Circuit addressed the constitutionality of 11 U.S.C. § 526(a)(4) and § 527(b). After finding that bankruptcy attorneys qualify as ‘debt relief agencies’ under 11 U.S.C. § 101(12A), the court affirmed the district court’s holding that § 527(b), which compels that certain information regarding bankruptcy proceedings be conveyed by the “debt relief agency” to “assisted persons,” does not violate the First Amendment. The court reversed the district court’s finding that § 526(a)(4), which prohibits an attorney from advising his or her client to incur debt in contemplation of filing for bankruptcy, is facially unconstitutional.  

In finding that § 526(a)(4) does not offend the First Amendment, the court applied the doctrine of constitutional avoidance to narrowly interpret the provision such that it would fall within constitutional parameters. Thus, the court construed the phrase “in contemplation of” to suggest that the prohibition is coupled with an implicit requirement that the speech only be prohibited when it constitutes an intent to abuse the bankruptcy system. Here, the court deviated from the Eighth Circuit majority opinion in Milavetz, Gallop & Milavetz, P.A., v. United States, 541 F.3d 785 (8th Cir. 2008), which held that the provision was facially unconstitutional.

The court affirmed the lower court’s decision that 11 U.S.C. §527(b) was constitutional, finding that under either strict scrutiny or a more lenient standard, the provision is narrowly tailored to promote the government’s interest in providing relevant information to consumer debtors, and does not unduly burden attorneys or their clients in bankruptcy.

NACBA filed an Amicus brief in the case.