Bankruptcy Credit Counseling - What Is Involved

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Credit counseling is required within 180 days prior to filing Chapter 11 bankruptcy. This involves an individual or group briefing from an approved nonprofit budget and credit counseling agency (see below for a list of approved agencies). To obtain a discharge in a Chapter 7 or Chapter 13 case, an individual must—in addition to undergoing credit counseling—attend a post-filing instructional course concerning personal financial management offered by such an agency.

Pre-Filing Briefing

A pre-filing briefing will outline opportunities for available credit counseling and assists the individual in performing a budget analysis. The briefing is expected to last about 60 minutes and to cost about $50, but agencies will sometimes not charge individuals who cannot afford to pay or at reduced rates. The agency will provide a certificate of completion of the briefing, and the debtor should file this certificate along with the bankruptcy petition.

Pre-Discharge Course

A pre-discharge course is expected to last longer, perhaps as long as 4 hours, and cost more. Agencies may not charge a fee to debtors who request a fee waiver or fee reduction (fee waivers vary by agency). Upon completion of the course, the debtor will obtain a certificate and file it with the court as an exhibit to Form B23.

Joint Petitions

When a married couple files a joint petition, each spouse must attend the pre-filing briefing and pre-discharge instruction. They may attend the same counseling session. An individual should be able to satisfy the pre-filing and pre-discharge education requirements in person, over the telephone, or online (i.e., live chat, email). 

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 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 among 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 the Counseling Requirement

There are a few situations 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.

After Hurricane Katrina, the United States Trustee’s office waived the pre-filing counseling requirement in the Southern District of Mississippi and in all the districts of Louisiana. This waiver does not apply to Katrina victims filing in other judicial districts. Similarly, the Trustee’s office has the power to waive the pre-filing counseling requirement in any other areas where it’s not possible for the creditor to obtain creditor counseling because of a a natural disaster. The waiver must be reviewed on an annual basis to see if the area still qualifies for the waiver. 

Consequences of Not Completing Required Counseling

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 current case law regarding whether such a dismissal might affect a debtor’s right to obtain a discharge in a subsequent case.

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 attempting to obtain the required briefing.

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. The listing includes agencies that offer services in Spanish and several other languages. The Federal Trade Commission provides a list of questions to run by your selected choices before you pick one.

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