What is a “Debt Relief Agency” and Why Does it Matter?

“In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (the BAPCPA), Pub.L. No. 109–8, 119 Stat. 23 (2005).”  Hersh v. U.S. ex rel. Mukasey, 553 F.3d 743, 746 (5th Cir. 2008).  BAPCPA made a variety of changes to the Bankruptcy Code including the addition of sections 526, 527 and 528 which provide various regulations for “debt relief agencies.”  11 U.S.C. §§ 526-528.  See also Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 130 S. Ct. 1324, 176 L. Ed. 2d 79 (2010) (discussing application of § 526).  A “debt relief agency” is “any person who provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration.”  11 U.S.C.A. § 101(12A).  However, the Bankruptcy Code specifically excludes five general groups from the definition of “debt relief agency.”  These groups are:

(A) any person who is an officer, director, employee, or agent of a person who provides such assistance or of the bankruptcy petition preparer;
(B) a nonprofit organization that is exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986;
(C) 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;
(D) a depository institution (as defined in section 3 of the Federal Deposit Insurance Act) or any Federal credit union or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such depository institution or credit union; or
(E) an author, publisher, distributor, or seller of works subject to copyright protection under title 17, when acting in such capacity.

11 U.S.C.A. § 101(12A).  Entities that fall within the parameters of one of these five exceptions would not be subject to §§ 526, 527 or 528 given that they are not considered “debt relief agencies.”

Notably, the lynchpin of a “debt relief agency” requires that the bankruptcy assistance be provided to an “assisted person.”  The Bankruptcy Code defines “assisted person” as “any person whose debts consist primarily of consumer debts and the value of whose nonexempt property is less than $192,450.”  11 U.S.C.A. § 101(3).  (Pursuant to § 104 of the Bankruptcy Code, this dollar amount is adjusted every three years.  11 U.S.C. § 104.)  Thus, by definition, any person whose nonexempt property exceeds the statutory amount will not be an “assisted person” and thus the appropriate regulations under 11 U.S.C. §§ 526-528 will not be applicable.

Attorneys that provide assistance to “assisted persons” constitute “debt relief agencies.”  Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229, 130 S. Ct. 1324, 176 L. Ed. 2d 79 (2010); see also Hersh v. U.S. ex rel. Mukasey, 553 F.3d 743, 750 (5th Cir. 2008) (“[U]nder the plain language of 11 U.S.C. § 101(12A), attorneys qualify as ‘debt relief agencies.’”); In re Brown, 505 B.R. 716, 723 (Bankr. W.D. Va. 2014) (“an attorney representing a consumer debtor who qualifies as an ‘assisted person’ is a ‘debt relief agency.’”).

Section 526, 527 and 528 of the Bankruptcy Code provide various regulations for “debt relief agencies.”  Section 526 provides various restrictions on “debt relief agencies.”  “Section 526(a)(2) is violated when a debt-relief agency ‘counsel[s] or advise[s] any assisted person’ to make a fraudulent or misleading statement in a document in a bankruptcy case.”  In re Clink, 770 F.3d 719, 723 (8th Cir. 2014).  This is true regardless whether the document is actually filed.  Id.  Section 527 requires a “debt relief agency” to provide various disclosures to an assisted person.  Furthermore, § 528 has certain contractual and advertising requirements for debt relief agencies.

“If a debt relief agency is determined to have ‘intentionally or negligently’ violated any provision of §§ 526, 527 or 528, such entity shall be liable ‘to an assisted person in the amount of any fees or charges in connection with providing bankruptcy assistance to such person that such debt relief agency has received, for actual damages, and for reasonable attorneys' fees and costs.’” In re Brown, 505 B.R. 716, 723 (Bankr. W.D. Va. 2014) (citing 11 U.S.C. § 526(c)(2)).

Michael D. Fielding
Husch Blackwell LLP