Sec. 103. Terms and conditions of income-share agreement contracts
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/bill/114/hr/3432/ih/section-103·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
An income-share agreement complies with the requirements of this section only if the contract complies with each of the following conditions: The income-share agreement shall specify the percentage of future income that the individual subject to the agreement will be obligated to pay, except that the agreement shall provide that for any year covered by such agreement during which the individual has an income that is less than $18,000 (as such amount is adjusted pursuant to paragraph (8)) the individual shall not be required to pay for such year any portion of the individual’s income.
The income-share agreement shall specify the definition of income to be used for purposes of calculating an individual’s obligation to pay under the agreement. The percentage of income required under the income-share agreement to be paid by the individual subject to the agreement may not exceed a percentage such that, when multiplied by $15,000 (as such amount is adjusted pursuant to paragraph (8)), the product exceeds the aggregate amount of periodic payments of principal and interest that would be required to be paid during a 12-month period under a comparable loan that bears interest at a fixed annual rate of 20 percent.
The income-share agreement may not provide for the individual subject to the agreement to pay under the agreement an amount of the future income of such individual that, when added to any other amounts of future income that such individual has agreed to pay under any other income-share agreements to which such individual is subject, equals a sum that at any time exceeds 15 percent of the future income of such individual. The income-share agreement may not provide for the individual subject to the agreement to assume a commitment to pay future income having a commitment factor, that when added to the commitment factors for any other income-share agreements to which such individual is subject, equals a sum that exceeds the maximum commitment factor.
As used in this paragraph, the term commitment factor means, with respect to an income-share agreement, the product of— the percentage (expressed as a decimal) of such future income required to be paid during such period; and the remaining number of years under the agreement that future income is required to be paid at such percentage. As used in this paragraph, the term maximum commitment factor means, with respect to an income-share agreement, 2.25 (which figure is the product of 7.5 percent and the number of years in the longest allowable contract under paragraph (6)(A)).
The income-share agreement shall specify the maximum period of time during which the individual will be obligated to pay a portion of the individual’s future income which may not, except as provided in subparagraph (B), exceed 360 months. The income-share agreement may provide that such period may be extended by a number of years that is equal to the number of years during which the agreement is in force for which the individual’s annual income is below the dollar amount specified in paragraph (3)(A) (as such amount is adjusted pursuant to paragraph (8)).
The income-share agreement shall specify the terms and conditions by which the individual subject to the agreement may extinguish the individual’s obligations under the agreement before the end of the payment period specified in the agreement and any application extension provided for in the agreement pursuant to paragraph (6)(B). A dollar amount adjusted in accordance with this paragraph shall be adjusted each year to reflect changes in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics of the Department of Labor for the most recent 12-month period for which such data are available.
An income-share agreement does not comply with the requirements of this section unless the individual who is committing under the agreement to pay future income is provided, before entering into such agreement, a written document that clearly and simply discloses— that the agreement is not a debt instrument, and that the amount the individual will be required to pay under the agreement— may be more or less than the amount provided to the individual pursuant to the agreement; and will vary in proportion to the individual’s future income; that the obligations of the individual under the agreement are not dischargeable under bankruptcy law, except in a case that would impose an undue hardship on the debtor and the debtor’s dependents; whether the obligations of the individual under the agreement may be extinguished by accelerating payments, and, if so, under what terms; the duration of the individual’s obligations under the agreement (absent such accelerating payments), including any circumstances under which the duration of the agreement would be extended; the percentage of income the individual is committing to pay under the agreement and the minimum amount of annual income that, pursuant to subsection (b)(1), triggers the individual’s obligation under the agreement to make payments for such year; the definition of income to be used for purposes of calculating the individual’s obligation under the agreement; and a comparison of— the amounts an individual would be required to pay under the income-share agreement at a range of annual income levels, which income levels shall correspond to the levels the individual might reasonably be expected to make given the intended use of the funds provided under the agreement, as determined in accordance with guidance issued by the Secretary of the Treasury; to the amounts required to be paid under a comparable loan that bears interest at a fixed annual rate of 10 percent.
An income-share agreement represents an obligation by the individual pay the specific percentage of future income, but shall not be construed to give the contract holder any rights over an individual’s actions. For purposes of this section, the term comparable loan means, with respect to an income-share agreement, a loan that— has the same original principal amount as the total amount of the payment or payments made under the income-share agreement to or on behalf the individual subject to the agreement; has the same term to maturity as the duration of the income-share agreement; and is fully amortized over such term with monthly payments of principal and interest.