Bankruptcy

Before Filing for Bankruptcy-Information about Credit Counseling and Debtor Education

Beginning in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act, requires that a person who intends to file bankruptcy protection must get credit counseling from a government approved organization.  A debtor must also take an education course.  The credit counseling must be completed at least 180 days before filing for bankruptcy.  The debtor education must be completed after the filing process.  A certificate of completion is required from both programs.  Only the Department of Justice’s U.S. Trustee Program can approve organizations to provide the mandatory credit counseling and debtor education.

Check the U.S. Trustees website to find an approved organization before getting started.  The pre-bankruptcy counseling includes an assessment of the current personal financial situation, a discussion about alternatives to bankruptcy and reviewing or creating a budget plan going forth.  The sessions typically run 60 to 90 minutes and can be in person, on the phone or online.  A fee waiver can be obtained from the counseling agency if there is financial need and must be requested before the session begins.  If the request is not made before the counseling session begins, a fee of approximately $50 will be assessed.  A certificate, produced through a central automated system and numbered to prevent fraud, will be issued at the completion of the course and must be submitted to the court upon the filing of the case.

The debtor education course, which takes place after filing but before the discharge of debts, includes information on developing a budget, using credit wisely, managing money and other resources.  This too can take place in person, on the phone or online.  The course typically takes about two hours and can cost anywhere from $50 to $100.  If financial hardship exists, ask for a fee waiver before the session begins.  A separate certificate will be issued at the completion of the course and must be shown to the court before debts are discharged.

The credit counseling and debtor education courses must be approved by the U.S. Trustee Program and meet certain criteria.  Each state varies in the exact course contents and the distribution of information but generally the course information is the same.  It is important to note that the decision of course instructor and medium (in person, on the phone or online) are choices that need not be taken lightly.  If a personal instructor is chosen over an online course, keep in mind that establishing a good rapport will make the process easier and more comfortable.  Research each organization and call ahead to get a feel for the type of company it is and the types of employees you will be working with on your journey to financial independence.