Recent statistics by the government show that the total number of bankruptcy filings increased by 13 percent from 2023 until September. According to Reuters, this number could be as high as 18 percent, with a further increase expected in 2024. Because many people may consider filing for bankruptcy this year as a way to get a new start, it’s important to know the fundamentals of the process. This includes credit counseling. It’s likely that a sizable chunk of people aren’t fully aware of the concept. So, it’s worth taking a look at what pre-filing counseling is, why it’s important, and how it differs from debtor education.
What Is Pre-Bankruptcy Credit Counseling?
As your debt lawyer may tell you, credit counseling is a requirement for both Chapter 7 bankruptcy and Chapter 13 bankruptcy. When you file for either type, you need to meet different requirements. This includes disclosing your entire financial situation through official bankruptcy forms, paying a filing fee, and proving that you’ve completed credit counseling from an approved agency. Part of this final requirement is that you should receive counseling within the 180-day period prior to filing for bankruptcy.
Proving That You’ve Completed The Course
When submitting your bankruptcy paperwork, you must submit the certificate of completion as well. Make sure that you submit it no later than 15 days after the filing date. Additionally, you’ll get a copy of a repayment plan you discussed during the course (applicable if you’re filing for Chapter 13).
Why Is It Important?
When you’re stuck in a financial rut, it can feel like bankruptcy is the only way you can get out of this mess. In this situation, credit counseling is required to help you determine if you really need to file for bankruptcy. It allows you to see if you’ve really tried all your options, such as an informal repayment plan.
Of course, some cases are clear-cut. Your debts may be too high compared to your income, making it clear that you require a discharge or other form of relief. Similarly, you may be faced with debts you consider unfair and don’t want to repay. Even then, you still need to complete credit counseling.
What Does It Include?
One of the ways that a counseling agency assists filers is by preparing a budget according to their monthly expenses and income. Then, they go over the individual’s options for paying back the debt. Usually, the agency confirms that there aren’t any suitable options to deal with the debt besides filing for bankruptcy.
In some cases, however, they do come up with a possible repayment plan. Don’t worry, though; even if they provide a feasible repayment plan, you’re not obligated to agree. As per bankruptcy law, you’re required to participate in the counseling process instead of agreeing to whatever they propose. That being said, if the agency does formulate a possible repayment plan, you need to submit it along with other bankruptcy documentation at the time of filing.
After you complete the counseling process, you’ll get a certificate from the agency that you must, as mentioned above, file with your paperwork within 15 days after the filing date.
Finding Credit Counseling Agencies
Keep in mind that you can only receive credits for the counseling process if the bankruptcy jurisdiction approves of it. A prerequisite in this case is to find an approved agency, which you can do through the US Trustee’s website. There, you’ll find a list of approved agencies that mention different providers by jurisdiction.
It’s important to remember that credit counseling agencies charge a reasonable fee for their services. This is around $50, but you can ask to pay in installments or ask for a fee waiver if you’re below a certain income level.
Choosing The Right One
If you’re not sure about which agency to choose, one recommendation is to consult your debt attorney. Debt relief lawyers have helped many clients navigate the process so they’ll know which organizations do a better job. Of course, you can still narrow down some options, too. You can do this by asking questions like:
- How much does counseling cost? Do you provide fee waivers?
- Can you help me avoid future debt?
- Are your counselors trained and certified? What licensing and certification do they have?
Although pre-filing credit counseling seems like another obstacle in the way of your discharge, that’s not the case. Sitting down with an expert can give you the knowledge to avoid needing to go through bankruptcy again.
The Debtor Education Course
A common misconception among people is that credit counseling and debtor education are similar and can be completed at the same time. The two courses are entirely different and must be completed at different times. You must obtain credit counseling before filing for bankruptcy, while debtor education is a different course that you need to complete after filing for bankruptcy.
This course is a requirement in order to receive a debt discharge. The purpose of the course is to teach you money management so you can avoid needing to file for bankruptcy again. You’ll learn about things like preparing a budget, using credit responsibly, and coping with financial emergencies. These classes can cost you between $50 and $100, and you’ll get a certificate of completion to prove that you took the classes.
Just like with credit counseling, you need to complete the debtor education course through a DOJ-approved agency. You also need to meet a deadline for submitting your post-bankruptcy debtor education certificate. This can vary depending on the type of bankruptcy you’re filing for. In 7 Chapter, you need to file the completion certificate 45 days after your creditors’ meeting. In the case of Chapter 13, you need to file the certificate by the date of your last payment, which is part of your repayment plan.
If all of this seems overwhelming to keep up with, you’re not wrong. The bankruptcy process is time-consuming and confusing, and missing a single deadline can put you back by several months. That’s why you should consider hiring a bankruptcy Chapter 13 attorney to help you navigate the complex system.