Credit counseling and other educational requirements under the new bankruptcy law are required of debtors. What do they entail?

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bankruptcy credit counseling consumer bankruptcy

Individuals may not file under any chapter of Title 11 unless, within 180 days prior to filing, they have received an individual or group briefing from an approved nonprofit budget and credit counseling agency. To obtain a discharge in a Chapter 7 or Chapter 13 case, an individual must in addition attend a post-filing instructional course concerning personal financial management offered by such an agency.
The pre-filing briefing outlines opportunities for available credit counseling and assists the individual in performing a related budget analysis. The briefing is expected to last about 90 minutes and to cost about $50, but agencies may not charge individuals who cannot afford to pay. The agency will provide a certificate evidencing completion of the briefing, and the debtor should file that certificate along with the bankruptcy petition.
The pre-discharge course is expected to last longer, perhaps as long as 4 hours, and to cost more. Agencies may not charge a fee to debtors who can’t afford to pay. Upon completion of the course, the debtor will obtain a certificate and file it with the court as an exhibit to the new Form B23.
When a married couple files a joint petition, both must obtain the pre-filing briefing and pre-discharge instruction. According to the new bankruptcy law, an individual should be able to satisfy the pre-filing and pre-discharge education requirements in person, over the telephone, or over the Internet. Very few agencies who offer just Internet counseling and training have been approved, however.
Debt management plan. Some budget and credit counseling agencies will prepare a debt management plan as part of the pre-filing briefing. The plan, if one is created, must also be filed along with the petition.
A debt management plan may not be the best choice for a personal bankruptcy debtor because, generally speaking, it will provide only for reduced interest on credit card payments without reducing the amount of principal that the debtor must repay. Neither can a debt management plan eliminate debts without the creditor’s agreement.
There is also a fear amongst consumer bankruptcy attorneys that some credit counseling agencies may receive kickbacks from credit card lenders that will affect the objectivity of any plan proposed by the agency.
Waiver of requirement: There are a few situations under the new bankruptcy law where it is possible to obtain a temporary or permanent waiver of the education requirements. The requirement can be waived altogether if the Bankruptcy Judge determines, after a hearing, that the debtor is unable to complete the requirement because of incapacity, disability or active military duty in a combat zone. Incapacity refers to severe mental illness that prevents the debtor from making rational decisions about financial matters. The disability would have to preclude the debtor from participating, after reasonable effort, in person, over the telephone, or over the Internet. Accordingly, very few debtors will qualify for a waiver by reason of incapacity or disability. The law does not provide any exception for individuals having limited proficiency in English, and the United States Trustee has (so far, anyway) taken the position that the debtor must furnish any required translator at the debtor’s own expense.
A temporary waiver of the pre-filing briefing can be obtained if exigent circumstances prevent the debtor from obtaining the briefing within 5 days after asking any one agency. The debtor must obtain the briefing within 30 days after filing, but the court can allow an additional 15 days for cause. Because of Hurricane Katrina, the United States Trustee’s office has waived the pre-filing counseling requirement in the Southern District of Mississippi and in all the districts of Louisiana. This waiver would not apply to Katrina victims filing in other judicial districts.
The requirement for pre-filing credit counseling may affect a debtor’s ability to file a skeleton petition on short notice in order, for example, to halt a threatened foreclosure. There is no case law as yet concerning whether a debtor can, for example, file before 5 days have elapsed after the debtor attempted to obtain the required briefing.
Failure to either obtain the required pre-filing briefing or to request a waiver for a documented and acceptable reason will result in the Bankruptcy Judge dismissing the case. There is no case law yet concerning whether such a dismissal might affect a debtor’s right to obtain a discharge in a subsequent case.
List of approved agencies: In most judicial districts, the United States Trustee program within the Department of Justice must approve nonprofit budget and credit counseling agencies. In the few districts that are not part of the United States Trustee program, the Bankruptcy Administrator handles approvals.
You can find a list of approved agencies online at your own Bankruptcy Court’s web site-http://www.XXXb.uscourts.gov, where “XXX” is, insert the state and district (for example, “gas” for Southern District of Georgia or “ma” for District of Massachusetts).
(Reviewed 11.14.08)