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Debt Relief Agency

11 USC Section 101 (12A) defines the term ‘Debt Relief Agency’ as any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer.  The following persons or institutions do not come under the purview of the term ‘Debt Relief Agency’:

  1. any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer;
  2. a nonprofit organization that is exempt from taxation;
  3. a creditor of such assisted person, to the extent that the creditor is assisting such assisted person to restructure any debt owed by such assisted person to the creditor;
  4. a depository institution or any Federal credit union or State credit union, or any affiliate or subsidiary of such depository institution or credit union;
  5. an author, publisher, distributor, or seller of works subject to copyright protection when acting in such capacity.

Section 526(a) of the Bankruptcy Code places certain restrictions on the activities of Debt Relief Agencies.  Under this provision, a Debt Relief Agency shall not fail to perform any service that it informed an assisted person or prospective assisted person that it would provide in connection with a bankruptcy case or proceeding.  A Debt Relief Agency shall also not make any statement, or counsel or advice any assisted person or prospective assisted person to make a statement in a document filed in a bankruptcy case or proceeding, that is untrue and misleading, or that upon the exercise of reasonable care, should have been known by such agency to be untrue or misleading.  The provision also prohibits a Debt Relief Agency from misrepresenting to any assisted person or prospective assisted person, directly or indirectly, affirmatively or by material omission, with respect to the services that such agency will provide to such person; or the benefits and risks of becoming a debtor in a bankruptcy case.  It is also unlawful for a Debt Relief Agency to advise an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a bankruptcy case or to pay an attorney or bankruptcy petition preparer fee or charge for services performed as part of preparing for or representing a debtor in such a bankruptcy case.

Section 526(c)(1) renders a contract for bankruptcy assistance between a Debt Relief Agency and an assisted person void if the contract is not in compliance with the material requirements of Sections 526, 527 and 528 of the Bankruptcy Code.  Section 526(c)(1) also provides that such a contract may be enforced only by the assisted person.

Duties of a Debt Relief Agency as prescribed under Section 528 of the Bankruptcy Code are:

  1. A Debt Relief Agency must execute a written contract with the assisted person, explaining services, fees or charges and payment terms,
  2. A Debt Relief Agency must provide the assisted person with a copy of the fully executed and completed contract,
  3. A Debt Relief Agency must clearly and conspicuously disclose in certain advertisements that services or benefits are related to bankruptcy under the bankruptcy code,
  4. A Debt Relief Agency must clearly and conspicuously use the statement: “We are a Debt Relief Agency.  We help people file for bankruptcy relief under the Bankruptcy Code.” or a substantially similar statement.

A debt relief agency providing bankruptcy assistance to an assisted person shall provide a clear and conspicuous prescribed written notice advising the assisted person about the accurateness and truthfulness of all information.  The notice must also have a complete and accurate disclosure of all assets and liabilities including the replacement value of each asset.  Additionally, the notice should also state the current monthly income.
The written notice should advise that the information that an assisted person provides may be audited and that failure to provide such information may result in dismissal of the case or other sanction, including a criminal sanction.

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