I was talking with a debt industry friend today on the phone and he was asking me about the 60-60 program that credit counseling talks about trying to implement in place of debt settlement.
Typically the 60-60 program is talked about being a repayment of 60% of the balance over 60 months.
After the call I wanted to go back and read the original legislation on this again and much to my surprise I discovered the prevailing assumption about the 60-60 plan is wrong.
The 60-60 plan was part of the Bankruptcy Abuse Prevention and Consumer Abuse Prevention and Consumer Protection Act Protection Act of 2005.
The description of the 60-60 program reads like this:
SEC. 201. PROMOTION OF ALTERNATIVE DISPUTE RESOLUTION.
(a) Reduction of Claim.–Section 502 of title 11, United States
Code, is amended by adding at the end the following:
(k)(1) The court, on the motion of the debtor and after a hearing, may reduce a claim filed under this section based in whole on an unsecured consumer debt by not more than 20 percent of the claim, if–
(A) 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 budget and credit counseling agency described in section 111;
(B) the offer of the debtor under subparagraph (A)–
(i) was made at least 60 days before the date of the filing of the petition; and
(ii) provided for payment of at least 60 percent of the amount of the debt over a period not to exceed the repayment period of the loan, or a reasonable extension thereof; and
(C) no part of the debt under the alternative repayment schedule is nondischargeable.
(2) The debtor shall have the burden of proving, by clear and convincing evidence, that–
(A) the creditor unreasonably refused to consider the debtor’s proposal; and
(B) the proposed alternative repayment schedule was made prior to expiration of the 60-day period specified in paragraph (1)(B)(i).
(b) Limitation on Avoidability.–Section 547 of title 11, United States Code, is amended by adding at the end the following:
(h) The trustee may not avoid a transfer if such transfer was made as a part of an alternative repayment schedule between the debtor and any creditor of the debtor created by an approved nonprofit budget and credit counseling agency.
Here’s What We Missed
Despite conventional wisdom that the 60% payment must be proposed over 60 months, what the law actually says is that the debt can be repaid “over a period not to exceed the repayment period of the loan.” For a credit card on minimum payments we could be talking over a hundred months. For example, a card with a $2,000 balance, a minimum payment of $40 per month at 17.5% interest would take about 104 months to pay off and that’s not even factoring in the declining minimum payment.
Of course the point about reducing the claim in a consumer bankruptcy is a bit pointless but if credit counseling is going to push ahead the 60-60 plan I think we should at least get the facts right. A 60-60 plan is one where a 60% repayment has been proposed at least 60 days prior to filing bankruptcy and not just a repayment period of 60 months.
So why haven’t we seen more credit counseling putting forward 60% over the term of the loan? Quite frankly I don’t think they wanted to rock the creditor boat.
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