What is Credit Counseling?

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was signed into law on April 20, 2005 with most provisions set to take effect on October 17, 2005. BAPCPA had a large impact on how bankruptcies would be filed in the United States including implementing a new means test to determine if debtors were eligible to file for relief under Chapter 7 or if they would be required to file a Chapter 13 bankruptcy to repay some or all of their debts. It provided for more oversight by the U. S. Trustee’s Office including random and targeted audits as well as requiring all debtors complete required courses in credit counseling and financial management. Prior to the enactment of BAPCPA, debtors could file bankruptcy without the necessity of submitting to required credit counseling and their discharge was not dependant on them completing a financial management course. Many debtors and bankruptcy attorneys objected to this provision of the Act; however, Congress passed the Act including the provisions and now debtors must complete the required courses if they wish to file for bankruptcy relief and obtain a bankruptcy discharge.

Credit Counseling

Pre-bankruptcy Credit Counseling

Prior to filing a bankruptcy case, a debtor must complete a credit counseling course through a government-approved organization within 180 days before the filing date of the bankruptcy petition. Before you file your bankruptcy case, you are required to complete a credit counseling session that typically lasts approximately 90 minutes. Courses are available in person, by telephone and online through numerous approved credit counseling agencies. The cost for each course ranges from $10 to $50 depending on where you live and which specific credit counseling agency you choose. Agencies are required to provide credit counseling courses free to individuals who are unable to pay for the course; however, you must request a waiver and meet certain requirements for the fee to be waived.

During the session, you will review information and complete forms that will help you evaluate your current financial situation, discuss alternatives to bankruptcy and complete a personal budget. If you choose to complete the course online, you will communicate with a credit counselor via email or online chat sessions to discuss any questions you may have about your credit counseling session, bankruptcy or bankruptcy alternatives. In almost every case, the credit counseling agency will recommend bankruptcy as a viable option to solve your financial problems. You will receive a Credit Counseling Certificate as verification that you completed the course. This certificate must be filed with your bankruptcy petition.

Post-petition Debtor Education

This is also referred to as a financial management course and is required prior to you receiving a bankruptcy discharge. Many of the same agencies that offer pre-bankruptcy credit counseling offer the second course so you may choose to use the same company or another approved debtor education provider. The fees are similar for this course and range from $10 to $50 depending on where you live and the particular agency you choose. Just as with your credit counseling course, if you cannot afford to pay the fee, you should request a waiver of the fee.

The debtor education or financial management course is designed to help debtors manage their finances more responsibly by teaching them practical money skills such as creating and living within a budget, using credit wisely and managing money more effectively. The course is designed to be completed in approximately two hours; however, you must spend at minimum of two hours reviewing the material, answering review questions and completely other tasks in order to obtain your certificate. These courses are also available in person, by telephone and online. If you take the course online, you will have the opportunity to ask questions at the end of the session just as you did with the credit counseling online course. Many debtors report that the information they obtained through taking the financial management course helped them understand how to budget their money better and manage their finances more responsibly.

It is very important that you complete your debtor education course as soon as possible after the filing of your bankruptcy case. You must complete the course and file the certificate within 60 days after the date scheduled for your First Meeting of Creditors (your bankruptcy hearing date). If you fail to file your certificate prior to the deadline, the court will send a notice giving you a short deadline to file your certificate. If you fail to comply, your case will be closed without a discharge. Because you failed to file a certificate of completion, you will not be granted a bankruptcy discharge and you will continue to be legally liable for your debts. Your creditors can then begin collection efforts as if the bankruptcy case never occurred. Completing and filing the certificate of completion of a debtor education course is one of the most important requirements in your bankruptcy case.