Debt Relief Agencies
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), has added sections to regulate individuals, businesses or other organizations that assist a debtor in filing for bankruptcy or in prosecuting the case. The BAPCPA has defined the term debt relief agency as any person, business, or other organization that is compensated to help with a debtor's bankruptcy, and they must identify themselves as such. The 2 main types of debt relief agencies are bankruptcy petition preparers and lawyers.
However, any individual or organization that simply helps the debtor with his debts, such as negotiating with his creditors, is not considered a debt relief agency, in spite of the name. Probably a better name for what the law intended would be Bankruptcy Help Agency, which is more descriptive of the referent. Hence, nonprofit organizations or creditors of the debtor who assist in debt restructuring, or even authors of bankruptcy books do not fall within the definition of a debt relief agency.
So a debt relief agency is restricted to those who provide bankruptcy assistance to an assisted person. Bankruptcy assistance is defined in 101(4A) to cover a variety goods and services, such as advice, document proper preparation, or representation in connection with the bankruptcy case. Assisted person is defined by section 101(3) to mean any person whose debts are primarily consumer debts and with nonexempt property worth less than $150,000.
Within 5 days after a debt relief agency assists the debtor, it must provide a contract to the debtor that clearly explains:
- what services the agency will provide;
- the charge for their services;
- and the terms of payment.
The debtor must receive a copy of the completed and signed contract.
Mandatory Disclosures And Notices
Debt relief agencies must inform the debtor, in writing, of the following:
- All information must be complete, accurate, and truthful in the bankruptcy petition.
- All assets and liabilities must be listed, and the replacement value for the assets must be listed after a reasonable inquiry has been made to assess their actual value.
- Monthly income and projected disposable income must be listed in the bankruptcy petition, and reasonable efforts must be made to assure the accuracy of the projected disposable income.
- The information in the bankruptcy petition may be audited for accuracy and compliance with the law. If audited, the debtor must fully cooperate; otherwise his case will be dismissed, and may even include a criminal penalty.
The debt relief agency must give a general notice regarding basic bankruptcy requirements and options for help in filing and prosecuting the bankruptcy. The agency must give the debtor this notice within 3 business days after the agency first offers its services.
The debt relief agency must also provide plain English written information about what is required of most bankruptcies, such as dealing with secured debts and choosing exemptions.
Restrictions On Debt Relief Agencies
A debt relief agency may not:
- fail to perform any service that it said it would perform in the bankruptcy case;
- counsel the debtor to make any statements that are untrue or misleading or that the agency should have known was untrue or misleading; or
- advise the debtor to incur more debt in order to pay for the agency's services.
If the contract does not comply with the law, then it will not be enforceable against the debtor. The debt relief agency may be liable to the debtor for costs and fees, including legal fees, if the agency negligently or intentionally failed to comply with the law's restrictions on debt relief agencies, or failed to file the required documents, resulting in dismissal of the case or conversion to another bankruptcy chapter.
The debt relief agency is also prevented from engaging in false advertising that would mislead the public about the nature and purpose of the agency services.