Debtor Education: Your Ticket out of Bankruptcy

mortarboard-diploma-dollarsPeople who file for bankruptcy need 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 second session, which is often called “debtor education.”

After your bankruptcy case is filed, you’ll take an approved debtor education class. This session is one of the requirements that must be met in order to receive a bankruptcy discharge of your debt.

The cost depends upon the course provider you choose, but it’s usually no more than $50. Ask the provider about their fee waiver policy if you can’t afford to pay.

Most people complete the debtor education session over the Internet, but telephone and in-person courses are also available. If you’ve filed a Chapter 13 bankruptcy case that’s been assigned to Trustee Ann DeLaney, you have the option of attending a free in-person debtor education class that’s held monthly at the Courtyard Indianapolis Airport hotel.

Course Content

The United States Trustee Program has enacted regulations that govern the delivery and content of debtor education classes. Here’s an outline of the subjects that must be covered:

  • Budget development
    • Setting short-term and long-term financial goals, as well as developing skills to assist in achieving these goals
    • Calculating gross monthly income and net monthly income
    • Identifying and classifying monthly expenses as fixed, variable, or periodic
  • Money management
    • Keeping adequate financial records
    • Developing decision-making skills required to distinguish between wants and needs, and to comparison shop for goods and services
    • Maintaining appropriate levels of insurance coverage, taking into account the types and costs of insurance
    • Saving for emergencies, for periodic payments, and for financial goals
  • Wise use of credit
    • Identifying the types, sources, and costs of credit and loans
    • Identifying debt warning signs
    • Discussing appropriate use of credit and alternatives to credit use
    • Checking a credit rating
  • Consumer information
    • Identifying public and nonprofit resources for consumer assistance
    • Identifying applicable consumer protection laws and regulations, such as those governing correction of a credit record and protection against consumer fraud
  • Coping with unexpected financial crisis
    • Identifying alternatives to additional borrowing in times of unanticipated events
    • Seeking advice from public and private service agencies for assistance

Approved courses must provide two hours of instruction, and they must be presented by qualified instructors. Once you’ve completed the session, the provider will issue a certificate that proves you’ve fulfilled the debtor education requirement.

Is Debtor Education Worthwhile?

The purpose of debtor education is to help bankruptcy filers avoid future money problems by giving them information on making good financial decisions. Some bankruptcy attorneys feel the course is beneficial, while others point out that money trouble is often caused by things like divorce, job loss, or medical issues.

As for me, I agree the debtor education requirement is a one-size-fits-all approach, but on balance, I think it’s worthwhile. In fact, I’ve had many clients tell me the class was helpful in making the most of their financial fresh start.

Matt Conrad is an Indianapolis bankruptcy attorney and the founder of Conrad Legal LLC, which helps people in Central Indiana get out of debt with Chapter 7 and Chapter 13.

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