Before filing for bankruptcy, debtors must attend credit counseling as required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. All debtors wanting to file for bankruptcy under Chapter 7 or Chapter 13 are subject to this counseling requirement.
Counseling Requirements of the New Bankruptcy Law
- What Are the Counseling Requirements for Bankruptcy?
- Criteria for Credit Counseling
- Why Pre-Bankruptcy Classes Are Required
- Finding Credit Counseling Organizations and Expected Costs
- The Following Step: Post-Bankruptcy Consumer Education
- Important Inquiries to Ask Before Selecting a Credit Counselor
- Do I Need to Hire A Bankruptcy Lawyer?
What Are the Counseling Requirements for Bankruptcy?
Debtors are required to attend credit counseling from a provider that the U.S. Trustee’s Office has approved before filing for bankruptcy under Chapter 7 or Chapter 13.
The United States Trustee’s Office offers a list of accredited organizations on its website. This counseling is intended to help you decide if filing for bankruptcy is actually required or whether you may avoid doing so by making an unofficial repayment plan.
There is no way to escape the therapy because it is a requirement. While participation is necessary, you are not obligated to accept the agency’s suggested payback schedule. Before you may file for bankruptcy, you must submit the repayment plan the agency creates together with the certificate of completion to the court.
Before you may discharge your debt through bankruptcy, there are further counseling requirements. These extra counseling sessions serve the objective of teaching personal financial management. Before you may acquire a discharge that cancels your debts, you must submit the certification of completion to the court for this counseling.
Criteria for Credit Counseling
Credit counseling companies typically advise people on handling money and debts and creating budgets; most typically provide free educational resources and courses.
The new bankruptcy law’s mandatory credit counseling can be completed online, over the phone, or in person. Your therapy appointment should take around 90 minutes and involve a financial analysis.
You may be required to pay the credit counseling agency a fair fee for its services. Credit counseling agencies on the U.S. Trustee’s list are required to waive the cost for those unable to pay.
Depending on where you reside, the kinds of services you receive, and the administrative costs of the credit counseling organization, fees may be in the $50 to $100 range, but they may also be more.
After finishing the necessary counseling, you must get a certificate as proof. To ensure that you receive the appropriate certificate for the bankruptcy court where you will be filing for bankruptcy, check the U.S. Trustee’s website. For the certificate, certain credit counseling businesses could impose an additional fee.
Sometimes debt management plans (DMPs) are suggested and negotiated for customers by credit counseling agencies. In a DMP, you make a monthly payment to the credit counseling agency, which then uses it to pay your unsecured obligations, such as credit card bills, school loans, medical bills, and other debts, per a payment schedule that has been arranged between you and your creditors.
If you are repaying your debts through a DMP, creditors could occasionally agree to cut interest rates or waive particular expenses. Consumers who file for bankruptcy are not obligated to have a DMP. If you decide to use a DMP, you must submit a copy of the plan to the bankruptcy court and your bankruptcy application.
Why Pre-Bankruptcy Classes Are Required
Credit counseling can help you determine if you actually need to declare bankruptcy or if a loose repayment plan would help you get back on your feet financially. Even if it’s evident that a repayment plan isn’t possible (i.e., your debts are too big and your income is too low), counseling is still necessary if you have unfair debts you don’t want to pay.
The counseling organization often creates a budget based on your income and expenses before going over your debt repayment choices. The agency typically certifies that you have no other realistic options for handling the debt outside of declaring bankruptcy.
Under bankruptcy law, only your participation in the counseling is required; you are not required to accept the agency’s recommendations. You are not compelled to accept a repayment plan, even if it is workable. If the organization produces a plan, you must file it with your other bankruptcy documents.
Finding Credit Counseling Organizations and Expected Costs
Your bankruptcy jurisdiction must authorize the specific course of action you choose. By visiting the U.S. Trustee website, you can locate a recognized provider. Select “List of Approved Credit Counseling Agencies” from the drop-down menu after selecting the “Credit Counseling & Debtor Education” link.
When the list has been filled, scroll down until you see the jurisdiction of your court. You should pick a provider from that category to guarantee that you receive credit for the course.
Credit counseling services may be provided for a fair price. However, suppose a debtor is unable to pay the fee. In that case, the counseling organization is required to offer services without charge or at a significantly reduced rate by offering a sliding fee scale and a fee waiver for those making less than a certain amount of money (i.e., 150% of the federal poverty level for a family of equal size).
According to the Office of the U.S. Trustee, the law enforcement organization regulating credit-counseling businesses, a “fair” cost could range from free to $50, depending on the situation.
The Following Step: Post-Bankruptcy Consumer Education
After filing for bankruptcy, debtor education is the second course that bankruptcy filers must take. The debtor education course equips the bankruptcy filer with money management tools, including advice on setting up a budget and repairing credit after filing.
By submitting the certificate of completion to the court, you’ll demonstrate that you’ve finished the course (or the provider might do so for you). The court will dismiss the case if the certificate is not filed within 60 days of the date initially scheduled for the meeting of creditors, which is the only court appearance that all filers must attend.
Important Inquiries to Ask Before Selecting a Credit Counselor
It is advisable to actively participate in selecting a credit counseling agency, just like you should with any significant financial choice. Call a few organizations on the list of those recognized by the U.S. Trustee Program to get information before making your decision.
Ask these questions:
- What services do you offer?
- Will you work with me to create a strategy for preventing future issues?
- What do you charge?
- What will happen if I am unable to pay your fees?
- What credentials do your counselors possess? Are they recognized or certified by a third party? What kind of instruction do they get?
- What steps do you take to ensure the privacy and security of my personal data, such as my address, phone number, and financial details?
- How are your workers compensated? Are they compensated more if I sign up for particular services, pay a charge, or donate to your business?
- Let’s say I merely need the necessary budget planning and credit counseling before I can apply for bankruptcy relief. What is the price of these services? Which services will your business offer?
- How will I know if the certificate I need to apply for bankruptcy is the right one? Is the certificate more expensive?
- How much, if at all?
Do I Need to Hire A Bankruptcy Lawyer?
Bankruptcy filing is a challenging and emotional process. A bankruptcy attorney can help you with inquiries and can help you explore your alternatives because they are knowledgeable about the standards of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
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