Credit Counseling in Bankruptcy
Bankruptcy helps you clean up your financial life – erasing debt or restructuring it into a payment plan to help you catch up. If you’ve made financial mistakes, it is your chance to erase those mistakes and start over. (Of course, we know not all bankruptcies are caused by mistakes – misfortune, unexpected medical bills, and other unforeseen calamities can push you into bankruptcy as well.)
As part of the bankruptcy process, lawmakers added a two-part education requirement: a pre-filing education course on alternatives to bankruptcy and a pre-discharge course that provides financial education to give you a stronger footing on the other side of your bankruptcy case. You can find a list of U.S. trustee-approved courses on their website, but here is some helpful background information.
Pre-Filing Credit Counseling Course
Before you can file, not only do you have to prepare the voluminous paperwork and pay a filing fee, but you also have to complete the educational requirement – a credit counseling course – within 180 days before filing.
This credit counseling course will teach you about alternatives to bankruptcy in order to ensure that you make an informed decision to proceed with your filing. The counseling will include a review of your income and debts to either confirm that repayment is not feasible or outline a possible repayment plan that the agency feels is feasible.
Note that you are not required to follow the agency’s plan – you might simply wish to not repay debts that you disagree with, even if the plan clearly shows that you can pay those debts. However, the plan will be provided to the court and may lead the court to question you about your ability to repay your debts. If the court thinks you can make payments, they may try to persuade you into a Chapter 13 repayment plan instead, which you should discuss with your attorney before committing to.
As mentioned, you can find a list of credit counseling courses on the U.S. Trustee’s website. The fee for these courses can range from free to a minimal fee, such as $50. There are literally hundreds of providers, and filters on the listings to ensure that you pick one that provides services in your state. Many provide classes online as well and courses are offered in many different languages. Because there are so many choices, it may help to ask your bankruptcy attorney for a recommendation.
Pre-Discharge Financial Management Course
An ounce of prevention is worth a pound of bankruptcy paperwork – that’s the old saying, right?
Policymakers and lawmakers, in their infinite wisdom, want to prevent bankruptcy filers from having to go through this process multiple times. As a way to prevent repeat filings, they have made it mandatory for bankruptcy filers to take a financial management course before their case wraps up. For Chapter 7 filings, the course must be completed before your debt is discharged. For Chapter 13 filings, the course must be completed before your final payment is made under your payment plan, though many attorneys will suggest that you do it as soon as possible so that any information you learn from the course can be applied immediately, which makes it more likely that you complete your payment plan successfully.
The financial management course covers things like budgeting, and managing your income and expenses, and is typically a short online course. You can find providers for this on the US Trustee’s website as well. Just like the credit counseling course, there are hundreds of providers to choose from, so you may wish to ask your attorney for a recommendation of one that is actually good before you dive into something utterly painful and boring off of that list.
These Sound Worse Than They Are
If taking courses on finances sounds painful and boring (kind of like pursuing a college degree in accounting) we are right there with you. And having someone pore over my financial numbers sounds a little invasive. Fortunately, these online courses are short and to the point. The quality may vary by provider, and some may be funnier or more entertaining, but none should be particularly difficult or hard to complete. That being said, from the sheer number of providers, the barrier to entry obviously isn’t very high, so you may want to ask for recommendations.
Also, please note that the directory on the US Trustee’s website lists courses in many languages. If English is not your first language, and you are more comfortable taking the course in Spanish, Arabic, or some other language, there are many to choose from.
No matter which courses you choose, the bottom line is this: they are pretty much required for all filers, with only a few rare exceptions. And as boring as they may seem, who knows? You might just learn a thing or two.