Whenever a person files for Chapter 7 or Chapter 13 bankruptcy, he or she must submit proof that a credit counseling course from a nonprofit credit counseling agency was successfully completed. The purpose of this course is to help the filer determine whether he or she can pay his or her debt outside of bankruptcy and provide proper financial guidance to prevent an additional bankruptcy filing in the future.
What Is Required?
According to the Federal Trade Commission (FTC), all bankruptcy filers must take an approved credit counseling course prior to filing. The U.S. Department of Justice’s U.S. Trustee Program keeps a list of approved programs if filers are not sure where to go. Proof of completing a program must be submitted before the bankruptcy case can proceed further. In fact, this proof must be submitted within 180 days prior to filing for bankruptcy. The filer will normally walk away from the credit counseling program with a repayment plan, if a plan is realistic, although nothing in the FTC rules requires the filer to follow that specific plan.
Why is Credit Counseling Required in Bankruptcy?
One of the main reasons for requiring consumers to take a credit counseling course prior to filing is to weed out those cases that could be handled without bankruptcy but could easily be resolved via an informal repayment plan. Even if it is obvious the person’s debts are too high and income too low for a repayment plan to be successful, credit counseling is still required. The filer simply must go through the process and provide proof that it is completed before taking the next step and filing for bankruptcy.
What Is the Cost?
Unfortunately, credit counseling is not free, although the fees are not likely to break the bank. The average cost of credit counseling is around $50. Most credit counseling courses charge a reasonable fee for participants, and if someone cannot afford to pay for credit counseling, many counseling agencies offer these services at a reduced rate or even free if someone is below 150 percent of the poverty level for a family of the filer’s size. Many counseling agencies also offer services in languages other than English, including Spanish, Chinese, and French.
Exceptions to the Rule
If a U.S. Trustee determines that a credit counseling agency is not available in the district where the person will be filing, he or she may be exempt from taking credit counseling services. However, many of these services can be available online or via phone, so it is unlikely that the person would be completely exempt from credit counseling. Sometimes, a filer may not be able to take credit counseling before filing for bankruptcy. If he or she can prove to the bankruptcy court that the person had to file bankruptcy immediately and was unable to obtain counseling within five days after requesting it, he or she may be able to file and obtain credit counseling services later so long as proof of completion is submitted within 30 days after filing. Filers can even get the court to extend the deadline by 15 days for good cause shown.
Sometimes the individual simply cannot complete the credit counseling due to a physical disability, mental incapacity or military status. If the individual can submit proof and certify that fact, he or she may be exempt from the credit counseling requirement.
Post-Filing Counseling
This first credit counseling is not the only requirement the filer must meet. After filing the bankruptcy case, the filer must complete a second counseling class, as well, to be educated on the factors that led to his or her financial situation, and proof of completing debtor education must be submitted before he or she can receive a final bankruptcy discharge.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
Source: Alllaw.com – Credit Counseling Requirements in Bankruptcy