The Credit Counseling Requirement in Bankruptcy

With a few rare exceptions, you must get credit counseling before you file for bankruptcy. Here are the details.

Before you can file for Chapter 7 or Chapter 13 bankruptcy, you must take a course from a nonprofit credit counseling agency. The purpose of this consultation is to determine whether you can handle your debt load outside of bankruptcy, without adding to what you owe.

Bankruptcy Counseling Requirements

When filing your bankruptcy paperwork, you’ll include a credit counseling completion certificate. The certificate proves that you received credit counseling from an agency approved by the U.S Trustee’s office within the 180 days before you file your bankruptcy. The counseling agency will also give you a copy of any repayment plan you might have worked out with the agency. You can find approved agencies for your judicial district by visiting the website of the Office of the U.S. Trustee. Click “Credit Counseling & Debtor Education” to see the list.

Why the Bankruptcy Court Requires Counseling

The purpose of credit counseling is to see whether you need to file for bankruptcy or whether an informal repayment plan would get you back on your economic feet. Counseling is required even if it's evident that your debts are too high and your income is too low for a plan to work. It also doesn't matter if you’re facing debts that you find unfair and don’t want to pay. Credit card balances inflated by high-interest rates and penalties are particularly unpopular with many filers. So are emergency room bills and deficiency judgments based on auctions of repossessed cars.

Bankruptcy law requires that you participate in the counseling—not that you go along with whatever the agency proposes. Even if a repayment plan is feasible, you don’t have to agree to it. However, you must file any plan the agency comes up with along with your bankruptcy papers.

Counseling Costs

Credit counseling agencies can charge a reasonable fee for their services. If a debtor cannot afford the course, the counseling agency must provide services free or at a reduced rate. A sliding fee scale and a waiver of fees altogether for people below 150% of the poverty level for the family size must be available. Most course prices range from free to $50, depending on the circumstances.

Credit Counseling in Spanish, Chinese, French, or Another Language

If you speak a language other than English, you can likely get this counseling in your preferred language. The U.S. Trustee's website has a list of approved bankruptcy credit counseling and debtor education agencies that provide services in other languages.

Exceptions to the Counseling Requirement

You don’t have to get counseling if the U.S. Trustee certifies that an appropriate agency isn’t available to you in the district where you will be filing. However, counseling services are available by phone and online, so it’s unlikely that approved debt counseling will ever be unavailable.

You can also avoid this requirement if you certify to the court’s satisfaction that:

  • You had to file for bankruptcy immediately (perhaps to stop a wage garnishment or foreclosure).
  • You were unable to obtain counseling within five days after requesting it.

If you can prove that you didn’t receive credit counseling for these reasons, you must certify that to the court and complete the counseling within 30 days after filing. You can ask the court to extend this deadline by 15 days.

You can also avoid the credit counseling requirement if, after notice and hearing, the bankruptcy court determines that you couldn’t participate because of:

  • a physical disability that prevented you from attending counseling (this exception likely won’t apply if the counseling is available online or over the phone)
  • mental incapacity such that you’re unable to understand and benefit from the counseling, or
  • active duty in a military combat zone.

Post-Filing Debtor Education Counseling

After filing the case, the debtor must complete another course—debtor education. A debtor who fails to complete the debtor education will not be eligible for a discharge of qualifying debt.

This edited version is an excerpt that originally appeared in The New Bankruptcy: Will it Work for You?

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