The volume of critics and supporters of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) has finally begun to settle down. There is an emerging issue that several national associations of debt and credit counseling agencies are possibly endorsing as a marketing tool for their membership. Now lawyers are joining the arena of a particular section in the law and using part of it to entice consumers to realize the light at the end of the tunnel of debt. However, that light can be a locomotive coming the other way.
As a 40-year professional in consumer collections, I have experienced the difficulties of consumers dealing with debt. In its infant stage, consumer credit counseling offered a source to help consumers resolve their financial problems and has continued to do so. From the mid 1960s to the present, debt repayment problems and causes by consumers remain the same. However, helping consumers in financial difficulty has changed from a profession to big business for both profit and nonprofit agencies. Now lawyers offer remedy solutions to consumers or refer them to specialized agencies to repay their debts. The membership of all three may be promoting an inaccurate remedy by not fully disclosing the reality.
BAPCPA became effective Oct. 17, 2005, and its results are still the subject of heated debate at all levels. I will address a certain part of the law with which I have concerns about its application.
First, 11 USC §502(k) states:
(1) The court, on the motion of the debtor and after a hearing, may reduce a claim filed under this section based in whole on an unsecured consumer debt by not more than 20 percent of the claim, if —
(A) the claim was filed by a creditor who unreasonably refused to negotiate a reasonable alternative repayment schedule proposed on behalf of the debtor by an approved nonprofit budget and credit counseling agency described in §111;
(B) the offer of the debtor under subparagraph (A)—
(i) was made at least 60 days before the date of the filing of the petition; and
(ii) provided for payment of at least 60 percent of the amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof; and
(C) no part of the debt under the alternative repayment schedule is nondischargeable.
(2) The debtor shall have the burden of proving, by clear and convincing evidence, that—
(A) the creditor unreasonably refused to consider the debtor’s proposal; and
(B) the proposed alternative repayment schedule was made prior to expiration of the 60-day period specified in paragraph (1)(B)(i).
However, this is what is being advertised:
“Debt settlement services to lower your debt up to 60 percent.”
“BAPCPA has provided credit counseling agencies with a tool to help clients
resolve their debts for less than the full balance in the form of 60/60 plans.”
“Be debt free in 12-33 months and cut debt 60 percent.”
“Cut debt 60 percent and be debt free in 12-30 months.”
Since there are approximately 11,900,000 search results for “debt counseling,” the above were a random selection from presentations. Going to the sites has been a revelation of how only part of 11 USC §502(k) is advertised.
Debt settlement alternatives for consumers are not new. However, the magical 60 percent term has become more visible since Oct. 17, 2005. Everyone has the right to advertise. Everyone has a right to provide services to help consumers, but if you are promoting that BAPCPA affords a consumer a legal right to settle consumer debts for 60 percent, then, in my opinion, you’re wrong. Maybe you should explain the entire section to your client and applicable state law regarding debt settlement.
Wake up credit industry and creditor attorneys before you continue negotiation of settlement of the balance starting at 60 percent because the law says so. If the entity representing the consumer isn’t fully and accurately informing the consumer, then maybe you should.
This paper expresses the opinion of the author and not the opinion of Creditors Interchange Receivables Management LLC.