Bankruptcy: Credit Counseling Before Filing

Filing bankruptcy is a lot more involved than many people think. Not only will you have to fill out the necessary forms, but you must also attend credit counseling. The United States trustee won't approve your petition until you complete this step.

If you file a Chapter 7 or Chapter 13 bankruptcy, you must get credit counseling within 180 days before filing your bankruptcy petition. You also must complete an educational course on debt management before the bankruptcy court will discharge your debts.

The government enforced bankruptcy counseling and debtor education requirements to ensure that consumers learn these important facts about bankruptcy and reduce the likelihood of filing for bankruptcy again.

This article overviews the requirement to seek credit counseling services before becoming eligible for bankruptcy. For related information on housing and credit counseling, visit Housing and Credit Counseling.

Pre-Bankruptcy Counseling and Education Requirements

You must complete credit counseling before filing your bankruptcy case. You also must take a debtor education class after filing your petition. The courts will not discharge your consumer debts until you prove you completed both courses.

Upon completing your U.S. Trustee-approved counseling and education programs, filers will receive authenticated certificates to file with the court.

Before Filing: Credit Counseling

You may wonder why the courts require credit counseling before processing your bankruptcy filing. The courts take bankruptcy seriously. They want to ensure you understand that asking the courts to discharge legitimate debts is a last resort. They have deemed it vital that you realize why you are in such a precarious financial position.

Pre-bankruptcy counseling with an approved provider should, at the very least, include the following:

• A thorough review of your personal finances
• Discussion of bankruptcy alternatives
• Personal budget plan

Credit counseling sessions usually last roughly an hour or so. You can do them online, over the telephone, or in person. You may request a fee waiver before the session starts if you can't afford to pay for its services.

The courts require qualifying counseling organizations to provide free services to those who can't afford them. Depending on where you live and other factors, a counseling session may cost roughly $50.

After you complete the credit counseling requirement, the organization will supply you with a certificate. The credit counseling certificate is free of charge.

See the Department of Justice's approved credit counseling agencies list to find one near you.

After Filing: Debtor Education

Before the U.S. Bankruptcy Court discharges your debts, you must complete an approved course on consumer debt. Some refer to these classes as "providers or personal financial management instructional courses" or the "second course."

These financial education courses usually cover the following topics:

• Developing a budget
• Using credit cards responsibly
• Handling money management
• Seeking debt relief
• Reading a credit report
• Increasing and maintaining your credit score
• Repaying credit card debt

As with pre-bankruptcy credit counseling, you may attend debtor education courses in person, over the telephone, or online. These classes usually take about two hours to complete and cost between $50 and $100.

The bankruptcy course company may waive the fee if you can't afford it. Also, as with pre-bankruptcy counseling, you will receive a certificate to use as proof.

See the DOJ's list of approved debtor education providers to find one near you.

Does It Matter Which Pre-Discharge Debtor Education Course You Take?

The U.S. government must approve counseling organizations to qualify. Typically, the U.S. Trustee Program is responsible for approving credit counseling organizations. However, it doesn't operate in North Carolina or Alabama, so bankruptcy administrators approve such organizations.

Before enrolling in a credit counseling course, ensure it is accredited. You don't want to spend money on a pre-filing credit counseling program only to learn that your certificate of completion isn't valid.

Next, this article focuses on the requirement to seek credit counseling services before becoming eligible for bankruptcy.

What To Ask Before Choosing a Credit Counselor

Countless nonprofit organizations offer credit- and debt-related services. Make sure you do your homework before choosing one. Choose an approved provider if you're specifically seeking counseling to meet your bankruptcy filing requirements.

Before signing up for a bankruptcy course, ask prospective credit counselors the following questions:

• What services do you offer?
• Do you help develop a plan for avoiding heavy debt in the future?
• How much do you charge for your services?
• I can't afford your fees. Can you waive them?
• Can you describe the training and certification requirements of your counselors?
• How do I know you're keeping my personally identifiable information confidential?
• Are your employees paid a commission? Do they have other incentives to sell me additional services?
• If you aren't sure which nonprofit credit counseling course to take, ask your bankruptcy attorney.

A Bankruptcy Law Attorney Can Help

Contact a skilled bankruptcy attorney in your area if you're considering bankruptcy and unsure if it's the best option. You should also contact an attorney about these credit counseling and debt management courses. They can review your financial situation and let you know what other options are available. There may be a way to avoid a Chapter 7 bankruptcy. You may also learn that filing for bankruptcy is your best solution.

You May Also Like:

• Finding a Bankruptcy Alternative
• Bankruptcy Basics: The Six Different Types of Bankruptcy
• Bankruptcy Overview