CONSUMER BANKRUPTCY REMINDER

While the majority of the clients of Hannah Sheridan Loughridge & Cochran, LLP extend credit on a business to business basis, it is still worth noting that the Bankruptcy Code as revised in 2005 contains a provision which could trip up a creditor extending credit to consumers.  Note that this provision permits the reduction of a creditor’s claim only if the creditor’s claim is based in whole on unsecured consumer debt.

“The provision provides that, upon motion and hearing, a debtor may reduce a creditor’s claim by not more than 20% if:

1. 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 budgeting and credit counseling agency described in Section 111;
2. The offer was made at least 60 days prior to the filing of the petition for relief and provided for payment of at least 60% of the amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof, and
3. No part of the debt under the alternative repayment schedule is non-dischargeable.

The debtor has the burden of proving by a preponderance of the evidence that the creditor acted unreasonably and that the offer was made more than 60 days prior to the petition.”

North Carolina Bankruptcy Practice Manual 7^th Ed. (2012).

Translation:  If you sell to consumers on credit and they get behind, know with whom you are dealing if a debt consolidator calls you trying to work out a settlement.  Remember, they must be a nonprofit and must offer at least 60%.  Ask questions and request offers in writing so you have the best chance of protecting your claim.