Credit counseling and debtor education in bankruptcy

Here at Shenwick & Associates, we’ve filed approximately 1,000 bankruptcies in our 23 years of practice.  And each case is a unique as the person who files it, involving a complex tapestry of assets, debts, real estate, marital status and other factors.  But there’s one thing that all individual bankruptcy filings have in common–individual debtors must complete required educational courses both before and after the bankruptcy filing.  Businesses filing for bankruptcy do not to take these courses.

These courses became mandated under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).  Section 109 of the Bankruptcy Code governs who can be a debtor under various chapters of the Code.  Section 109(h)(1) of the Code provides that:

 . . . an individual may not be a debtor under this title unless such individual has, during the 180-day period ending on the date of filing of the petition by such individual, received from an approved nonprofit budget and credit counseling agency . . . an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in performing a related budget analysis.  

The only exceptions to the credit counseling requirement are for incapacity, disability, or active military duty in a military combat zone.  If a debtor has taken a credit counseling course with the 180 days prior to the bankruptcy filing, but not yet received the certificate of counseling, the certificate must be filed within 14 days after the bankruptcy filing.

In practice, as soon as we are retained by clients, we recommend that they take the credit counseling course right away, especially if it’s an emergency filing to stay litigation or foreclosure.  It’s rare that clients have to take the course a second time.  There are many approved credit counseling agencies, which charge $25 for counseling online and $35-$50 for counseling via phone.

Rule 1007(c) of the Federal Rules of Bankruptcy Procedure requires the debtor to file a certificate of completion of a personal financial management course within 60 days after the first date set for the debtor’s meeting of creditors pursuant to § 341 of the Code (the “341 meeting.”)  The requirement to take a personal financial management course is contained in § 727 of the Code, which governs discharge.  Section 727(a)(11) of the Code provides that the court shall grant the debtor a discharge [of debts], unless ”after filing the petition, the debtor failed to complete an instructional course concerning personal financial management . . .”  The same exceptions for the credit counseling course (for incapacity, disability, or active military duty in a military combat zone) apply to the personal financial management course.

Although the certificate must be filed within 60 days after the first date set for the debtor’s 341 meeting, it can be filed any time after the debtor’s bankruptcy filing.  In practice, we recommend that debtors take it as soon as possible after filing, since it often falls through the cracks.  And we always remind debtors of the requirement when we attend their 341 meeting. Credit counseling agencies charge $15-$22 to take the course online and $25-$35 to take the course via phone.

For more information about credit counseling, debtor education and the bankruptcy process, please contact Jim Shenwick.