The law requires bankruptcy filers to complete two educational sessions: pre-filing credit counseling and a post-filing class in personal financial management. In this post, we’ll look at the credit counseling requirement.
With a few exceptions, everyone who files for bankruptcy needs to receive credit counseling within the 180 days before the case is filed. To satisfy this pre-bankruptcy counseling requirement, the session must be approved by the United States Trustee Program.
While in-person credit counseling is available in the Indianapolis area, most people complete the session by phone or Internet, from the privacy of their own homes. The cost for the counseling usually ranges from $5 to $50, but a fee waiver may be available for low-income bankruptcy filers. Plan on spending about an hour on the counseling session.
Federal regulations list the standards that credit counseling providers must meet if they want to provide pre-bankruptcy counseling. Here are some of the most important guidelines:
- Non-Profit Status: The counseling agency must be legally recognized as a non-profit entity.
- Qualified Counselors: The credit counselors must demonstrate competency through both education and experience. Also, they must pass a background check.
- Timely Certificates: When the session is complete, the counselor will issue a certificate that needs to be filed with the bankruptcy court. The counseling agency must send you (or your bankruptcy attorney) this certificate no later than one business day after you finish the counseling.
After an initial six-month probationary period, credit counseling agencies must reapply annually to the United States Trustee Program for approval. This ensures that agencies continue to meet the standards.
Why Require Credit Counseling Before Bankruptcy?
According to the Federal Trade Commission, “A pre-bankruptcy counseling session with an approved credit counseling organization should include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan.” The idea is to ensure that people don’t file for bankruptcy without first carefully considering their options. That’s a noble goal, but as another bankruptcy lawyer observes, by the time a person seeks out pre-bankruptcy credit counseling, it’s probably too late for other ways of getting out of debt.