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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 7th 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.


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