Series: #1 0f 13
This series of articles will take a look at the three sections of the bankruptcy code related to debt relief agents, sections 526, 527 and 528, and the requirements and responsibilities they impose on attorneys that act as a debt relief agency. We will then take an in-depth look at primary reasons why filing Chapter 13 rather than Chapter 7 bankruptcy may be the better (or the only) option for your client.
Pursuant to 11 U.S.C. § 101(12A), a “debt relief agency” means any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration. Accordingly, if the attorney charges any fees whatsoever or receives any other valuable consideration in the area of bankruptcy assistance, that attorney is a “debt relief agent” and must comply with the requirements of Sections 526, 527 and 528.
Future articles in this overview of bankruptcy will discuss:
Chapter 13; Section 526: Debt Relief Agent Requirements
Section 526 requires (among other things) debt relief agents to:
- Provide all services promised
- Properly advise the assisted person on benefits and risks associated with filing bankruptcy
- Refrain from advising assisted persons to make untrue or misleading statements
- Not advise the assisted person to incur more debt in contemplation of filing bankruptcy
While these issues seem clear and unambiguous on first reading, a closer understanding of this section shows the potential risks. We will take a more in-depth look at Section 526 in our next post.
Chapter 13; Section 527: Disclosure
Basically, Section 527 requires a debt relief agency to provide very specific written notices to the assisted person “not later than 3 business days after the first date on which a debt relief agency first offers to provide any bankruptcy assistance services to an assisted person.” While this may appear clear on its face, it can be very tricky to follow in certain circumstances.
Chapter 13; Section 528: Compliance
Section 528 has the final list of requirements with which the attorney may or may not be able to comply. We will go into more details about both Sections 257 and 258 in the third article of the series.
Initial Interview & Deciding Which Chapter to Use
Most debtors who walk into your office only know about Chapter 7 bankruptcy and have some common misconceptions about how a Chapter 7 works, how it differs from a Chapter 13 bankruptcy, and how much paperwork they will need to provide to properly prepare and advise the Chapter 7 trustee and the court.
Additionally, a debtor may not qualify for Chapter 7 protection due to any of a number of factors, which we will discuss later in this series.
Even though a debtor may not qualify for a Chapter 7 due to a prior filing or because the debtor has excess income, there are many reasons in which a debtor may find as much or more “stress-relief” in a Chapter 13 reorganization. The attorney must be careful to analyze all the benefits and risks (as required by 11 U.S.C. § 526*(a)(3)(B) and rules of professional responsibility before making such a determination as to which chapter is appropriate.
Next: Restrictions on Debt Relief Agencies: Overview of Bankruptcy: Chapter 13, Section 526