Credit Counseling and Debtor Education Requirements in Bankruptcy

U.S. bankruptcy law requires anyone filing for Chapter 7 or Chapter 13 bankruptcy to both receive credit counseling prior to filing and complete a debtor education course prior to the final discharge of debts.

Many people are confused by the two and wonder why they have to meet the same requirement twice. Actually, they don’t. Although both serve the ultimate purpose of avoiding unnecessary bankruptcy filings, each of these two requirements addresses the issue from different standpoints, with credit counseling functioning as a filter and debtor education serving to pre-empt future bankruptcies.

Credit Counseling Requirement in Bankruptcy

Every bankruptcy filer is required to receive credit counseling. Except when the filing is done in an emergency, such as to stop a foreclosure or judgment, the credit counseling must occur within the 180 days BEFORE the debtor files for bankruptcy. If the filing is done in an emergency, the counseling must be completed within 30 days of filing for bankruptcy (or 45 days if granted a 15-day extension). Debtors can also complete the counseling after filing if they are unable to receive counseling within five days of requesting it. Post-filing counseling in this case has the same deadline as for emergency filing. Failure to obtain credit counseling and file a certificate of completion with the bankruptcy court will result in dismissal of the case.

The purpose of this counseling is to ensure that the debtor is unable to resolve his or her debt issues outside of bankruptcy. Credit counseling for bankruptcy purposes must be provided by a government-approved agency. Click here to find a list of approved agencies. The credit counselor will review the debtor’s financial information and suggest a course of action to resolve the debt issues without filing for bankruptcy. If the counselor’s recommendations are reasonable, the debtor should follow those recommendations unless the bankruptcy serves an additional function, such as to halt collections by creditors. Resolving debt issues outside of bankruptcy saves many debtors a great deal of money, and they don’t have to sell assets or deal with other hassles involved in a bankruptcy.

In very rare cases, some debtors are exempted from the requirement to complete credit counseling before filing for bankruptcy. Debtors can be exempted from this requirement if there is no appropriate agency available to provide the counseling to them. However, counseling is available via phone and the internet, so few people get off the hook on this excuse. If a debtor has a physical disability or mental incapacity that prevents them from attending counseling or understand and benefit from counseling, the bankruptcy court is likely to excuse them from the credit counseling requirement. Bankruptcy debtors can also be excused from the credit counseling requirement if they are on active duty in a military combat zone.

Debtor Education Requirement for Chapter 7 and Chapter 13 Bankruptcy

AFTER filing for Chapter 7 or Chapter 13 bankruptcy, a debtor must complete a debtor education course. The course must be completed BEFORE the final discharge of debts or the debtor risks having the bankruptcy case closed without a discharge and creditors will resume collections. As with the credit counseling, the debtor education course must be completed through a government-approved agency or online course.

The purpose of the debtor education course is to educate the debtor about budgeting, debts and other financial skills so the debtor can avoid the need to file for bankruptcy in the future. Many people don’t understand how credit cards and other forms of debt work. Completing the debtor education course helps fill this knowledge gap so they can make wise decisions about debt.

As with the credit counseling requirement, there are a few rare circumstances that may exempt a debtor from the debtor education requirement. Essentially, the circumstances for being exempt from the debtor education requirement are the same as for credit counseling, though an exemption may also available if there is no course available in a language the debtor speaks.

Getting Help with Credit Counseling and Debtor Education Requirement

In Maryland, bankruptcy and debt solutions attorney John D. Burns and his firm can assist in finding approved agencies to provide credit counseling and debtor education courses if you have filed or plan to file for Chapter 13 or Chapter 7 bankruptcy. We can also advise you on whether to follow a credit counselor’s recommendation or file for bankruptcy, The Burns Law Firm can also help with any other bankruptcy or debt solutions need. Call our office at 301-441-8780 to schedule an appointment or e-mail us at jburns@burnsbankruptcyfirm.com.