If you are falling into financial difficulties, and you are about to discuss your situation with a New York bankruptcy lawyer, you might be told you are consulting with a “debt relief agency.” This phrase might be confusing, as it sounds a lot like “debt settlement,” which is entirely different from bankruptcy. What exactly is a “debt relief agency,” and why does it matter?
According to the Bankruptcy Code’s definitions statute, a “debt relief agency” is:
[A]ny 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.
“Bankruptcy assistance” and “assisted person” are also special terms in the definitions section. The latter means someone whose debts are primarily consumer debts and whose nonexempt property is less than $204,425, an amount that’s increased from $186,825 in the Bankruptcy Code due to the code’s automatic inflation adjustments. Essentially, assisted persons are designed to be just about anyone who files a consumer bankruptcy. “Bankruptcy assistance” largely means what it sounds like.
In short a “debt relief agency” includes bankruptcy lawyers, bankruptcy petition preparers, and similar service providers.
Why does it matter that a bankruptcy lawyer is a “debt relief agency”? Because when Congress changed the bankruptcy law in 2005, it wanted to codify the responsibilities that bankruptcy lawyers would have regarding their clients. Since the law claimed to be focused on bankruptcy abuse and consumer protection, specifying lawyers’ duties and punishing breaches of those duties served that purpose.
The duties that “debt relief agencies” are obligated to discharge are listed in Sections 526 to 528 of the Bankruptcy Code. They are categorized as “restrictions,” “disclosures,” and “requirements.” Generally, these rules restrict bankruptcy lawyers’ work. For instance Section 527(b) gives a series of text examples of notices that “debt relief agencies” are obligated to give to assisted persons. In some cases, the restrictions can frustrate the relationship between a debtor and his or her bankruptcy attorney, such as preventing the bankruptcy lawyer from advising the debtor to take on more debt before filing bankruptcy. In truth, it might be necessary for a debtor to do so, e.g. if the debtor needs a new car to drive to work. The U.S. Supreme Court in Milavetz, Gallop & Milavetz, P.A. v. U.S. (08-1119) clarified that bankruptcy lawyers can advise debtors to accumulate debts so long as they’re for a valid purpose.
Generally, though, the “debt relief agency” requirements and the “assisted person” definition do little to provide relief for debtors. However, confusing terminology should not prevent you from discussing your financial situation with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.