What is Credit Counseling in Bankruptcy & Why Do I Need It?

For many individuals, the decision to file for bankruptcy is one of the most serious financial decisions they'll ever make. The decision to file for bankruptcy should be made after careful consideration and research. When you file for bankruptcy, you are required to attend two credit counseling sessions: one prior to filing bankruptcy and one after you file but before the bankruptcy discharge is issued.

Pre-Bankruptcy Credit Counseling

Before you can file for Chapter 7 or Chapter 13 bankruptcy, you must consult with a credit counseling agency and complete a credit counseling course that has been approved by the United States Trustee's office. The purpose behind this consultation is to see whether there is a feasible way to handle your debt outside of bankruptcy, such as an informal repayment plan. You are required to complete this consultation within the 180-day period before you file for bankruptcy. There is a cost for credit counseling, but if you cannot afford the fee, the counseling agency will provide the service for free or at a reduced rate.

The counseling agency will usually prepare a budget based on your income and expenses, so it is best to have that information available before taking the course. Then, they will review your options for repaying the debt. In most cases, the agency will confirm that you don't have any other feasible options other than bankruptcy.

Bankruptcy law requires that you participate in the counseling, but it doesn't require that you go along with whatever the agency proposes. For example, if the counseling agency proposes an informal repayment plan, you can still go ahead and file for bankruptcy. However, you'll still need to file the paperwork from the agency when you file for bankruptcy.

Pre-Discharge Credit Counseling

In both Chapter 7 and Chapter 13, you are required to take a personal financial management course from an approved agency before you are able to receive your final discharge. It is usually best to complete this course as soon as you can after the filing of your case. This course is different from the one you took prior to filing for bankruptcy. Although the agency charges a fee, they must offer a discount if you cannot afford it.

This credit counseling course is geared towards teaching you how to rebuild your finances after bankruptcy, how to build and follow a budget, how to use a credit card and more. The goal is to teach people who are about to get their bankruptcy discharge on how to properly manage their money after their bankruptcy. Whether it works or not, is another issue that has been highly debated with inconclusive results.

After you take the credit counseling course, you must file Form 23 with the court. At the Dellutri Law Group, we handle all of this for our clients. You're also required to file a certificate of completion from the agency. This certifies demonstrates that you have taken the course.