Understanding the Law: Mandatory Credit Counseling for Bankruptcy Claims

Once you’ve exhausted your options for debt relief, you may have made the decision to file for bankruptcy. If you’ve done your research, you know the Federal Trade Commission requires mandatory credit counseling for bankruptcy claims. It’s important that you understand the stipulations of the law, as well as your rights when it comes to credit counseling.

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act states that consumers must get credit counseling for bankruptcy from a government-approved organization within 180 days before they file. They must also complete a financial education course in order to have their debts discharged. The law is in place to protect consumers, inform them of their rights surrounding bankruptcy filing, educate them on the filing process and alternatives to bankruptcy, and teach them ways to better manage their finances in the future. Note: In Alabama and North Carolina, court officials approve pre-bankruptcy counseling.

When seeking credit counseling for bankruptcy, it’s helpful to understand the process and to know what you can expect from the counseling agency.

Pre-Bankruptcy Filing Process

As part of your mandatory credit counseling for bankruptcy claims, the credit counseling agency must provide the following services to you before you file for bankruptcy:

• An evaluation of your personal financial situation. This includes your current income, debts, creditors, etc.
• A discussion of alternatives to bankruptcy. As you may know, you may be eligible for other products and services, such as a debt consolidation loan, a Debt Management Plan, or a Debt Settlement Plan. It depends on your individual financial situation, and you can decide which option – whether bankruptcy or not – is best for you. If you haven’t already reviewed your options other than bankruptcy, consider visiting CareOne’s community forums to talk to consumers like you who’ve faced similar financial challenges.
• A personal budget plan. A budget is a good idea for anyone, especially if you’ve had trouble paying your bills and keeping track of your income versus expenses. A good budget plan can also help you avoid future debt problems and better manage your money going forward.

While credit counseling for bankruptcy filing does come with a small fee – usually around $50, depending on your state, the types of services provided, and how the counseling is delivered – the agencies approved by the government must provide free services for those who cannot afford the fee. Talk to the agency prior to your credit counseling for bankruptcy session if you want to request a waiver of the fee.

Visit the U.S. Department of Justice/U.S. Trustee program website for a list of government-approved credit counseling agencies for your state.

Filing for Bankruptcy

Remember that credit counseling for bankruptcy is required before you can file. In order to file for bankruptcy, you must also provide proof of your participation in credit counseling.

The government-approved counseling agency must provide you with a certificate within 24 hours of the date and time you completed mandatory credit counseling for bankruptcy filing. When you file for bankruptcy protection, you’ll include this certificate of credit counseling completion with your claim. Because only those counselors approved by the U.S. Trustee Program may issue certificates of completion, it’s essential you partner with one of the agencies on the approved list for your state.

When filing for bankruptcy, you have more than one option. So it’s a good idea to familiarize yourself with filing choices, as well as the outcomes and impacts of filing. Read more about the filing process and your options before you go down this path.

Post-Filing Debtor Education

If and when you do file for bankruptcy, your claim is not complete until you receive post-filing financial education from an approved counselor. Different from your pre-filing mandatory credit counseling for bankruptcy, post-filing debtor education must take place after you file for bankruptcy and includes information on the following topics:

• Budgeting
• Managing money
• Using credit wisely

While your pre-filing credit counseling for bankruptcy session may take about an hour and cost around $50, post-filing debtor education typically lasts about two hours and costs between $50 and $100. As with pre-filing credit counseling, you may request a waiver if you cannot afford the fee. In addition, you’ll receive a certificate of completion once you attend a pre-filing debtor education session.

The process of filing for bankruptcy may feel overwhelming, but remember, the process and laws are in place to protect you and help you make smart choices with your money, both now and in the future. For more information about the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, see the U.S. Courts Bankruptcy Resources webpage and the American Institute of Certified Public Accountants article Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. 

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