Canadian Lawyer

March 2010

The most widely read magazine for Canadian lawyers

Issue link: https://digital.canadianlawyermag.com/i/50826

Contents of this Issue

Navigation

Page 17 of 59

L EGAL E TH IC S BY PHILIP SLAYTON wrong and I Call on a sense of right What's a lawyer to do when asked to advise a client considering bankruptcy to incur more debt? s it ethical for a lawyer to advise a client considering bankruptcy to incur more debt? After all, if the client is insolvent, any new debt will likely not be fully repaid, and will dilute existing creditors. Does it matter what the debt is for? Is there a difference, if you're broke, between borrowing for food and shelter, say, versus a winter holiday in the sun? The United States Supreme Court is currently considering these difficult issues. The U.S. Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) prohibits debt relief agencies, which arguably includes law- yers, from advising a client to incur more debt in contemplation of bank- ruptcy. In Milavetz Gallop & Milavetz v. United States, heard by the Supreme Court in December 2009, a Minnesota law firm argued that it either had to violate its ethical obligations under the Minnesota Rules of Professional Conduct to give clients "appropriate and beneficial advice," or be in breach of BAPCPA. This, it said, put its law- yers, and every other lawyer, in an impossible position. The American Bar Association supported the plaintiffs, and argued that, if BAPCPA applied to lawyers, it would interfere with regulation of the legal profession by state judicial sys- tems, and with the ability of counsel to advise clients in financial distress. The Supreme Court judgment in Milavetz is not expected until sometime in 2011. Questions and comments from the bench in Milavetz were vigorous and animated. Many of the justices seemed to enjoy toying with ethical dilemmas. Justice Sonia Sotomayor asked: "Can it ever be ethical for a lawyer to do something illegal? Is there a difference between unethical and illegal advice?" Justice Ruth Bader Ginsburg wondered whether advising a client contemplating bankruptcy to take on more debt was OK in some circumstances — if money were needed to treat serious cancer, 18 M ARCH 2010 www. C ANADIAN Law ye rmag.com for example. Justice Samuel Alito com- mented: "If a person takes on additional debt in order to obtain life-saving treat- ment, that is not done in contemplation of bankruptcy. . . . It's done because there is an emergency that requires immediate expenditures." Justice Antonin Scalia, in his inimitable fashion, was much less nuanced. "It's a stupid law," he said of BAPCPA, adding to laughter in the courtroom, "where is the prohibition of stupid laws in the Constitution?" I know of no explicit law in Canada forbidding a lawyer or anyone else from suggesting to someone contemplat- ing bankruptcy that he or she take on more debt. The federal Bankruptcy and Insolvency Act does not address the issue. Provincial fraudulent conveyance legislation only provides for the setting aside of improper transfers of property. DARCY MUENCHRATH

Articles in this issue

Archives of this issue

view archives of Canadian Lawyer - March 2010