What Are the Differences Between Credit Counseling and Debtor Education in Bankruptcy?

Credit counseling determines whether you will benefit from bankruptcy. Debtor education prevents future bankruptcy filings by teaching financial management.

Before you can file for Chapter 7 or Chapter 13 bankruptcy, you must take a course from a nonprofit credit counseling agency to determine whether you can handle your debt load outside of bankruptcy without adding to what you owe. After filing the case, you must complete another course—debtor education. The debtor education course, sometimes called "the second course," is designed to help debtors remain financially secure after a bankruptcy case ends.

Learn about things to avoid before filing for bankruptcy.

Bankruptcy Credit Counseling

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.

Why the Bankruptcy Court Requires Credit 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. The course 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.

How Much Does Credit 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.

Bankruptcy 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 in Bankruptcy

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 course 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.

What To Expect in the Post-Filing Debtor Education Counseling

The class itself typically lasts about two hours and provides information on such topics as:

  • setting and reaching financial goals
  • saving money
  • money management
  • preparing a budget
  • consumer protection
  • cutting expenses
  • using credit wisely and effectively, and
  • dealing with an unexpected financial crisis.

You'll want to be sure to use a provider approved by the court jurisdiction where you file your case. You'll use the same list of court-approved personal financial management providers available on the U.S. Trustee's website. Click "Credit Counseling & Debtor Education" on the left navbar and choose your state from the dropdown list.

The debtor education class is available online, over the phone, or in person. You can also get debtor education in a language other than English.

Paying for Debtor Education

Expect to pay a course fee ranging from $5 to $50, depending on the provider. Most providers offer a fee waiver or fee reduction for applicants whose income is below 150% of the Federal Poverty Level for the household size. You can find these numbers at the U.S. Department of Health and Human Services.

Filing the Debtor Education Completion Certificate With the Bankruptcy Court

Once you complete the class, you'll receive a certificate as proof. When you get the document, you'll submit it along with Form 423 Certification About a Financial Management Course. In some cases, the provider will file the certificate on your behalf. If you don't file the certification of completion, you won't receive your bankruptcy discharge, and the court will close your case.

Debtor Education Course Completion Deadlines

Here are the time limits for completing the course:

Chapter 7. If you filed for Chapter 7, you have 60 days after the first date set for the meeting of creditors to complete the debtor education course and file the certification of completion with the court.

Chapter 13. If you filed for Chapter 13 bankruptcy, you must complete the class and file the certification of completion before your last repayment plan payment or before you file a motion for discharge.

If you miss these deadlines, the court will dismiss your case without prejudice. You can reopen your matter, but you'll need to repay the bankruptcy filing fee. Some courts also require a motion asking the court to accept the certificate and to grant a discharge.

Exceptions to the Debtor Education Requirement

While all debtors must complete a debtor education course before receiving a bankruptcy discharge, a few exceptions exist. The court can waive the requirement if:

  • no court-approved course providers are available in your area
  • a course isn't available in a language you understand
  • you have an incapacity or disability that prevents you from being able to take the course, or
  • you're on active military duty in a military combat zone.

Unless an exception applies, you must comply with the debtor education requirement.

Completing the Credit Counseling and Debtor Education Courses

If you don't complete both courses before the deadlines, you won't receive a bankruptcy discharge—the order that wipes out qualifying debt.

Learn about the types of debt discharged in bankruptcy.

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