Bankruptcy “Credit Counseling” and “Debtor Education” Course Requirements Don’t Have to Be a Drag

Filing Personal Bankruptcy Credit Counseling RequirementsBankruptcy information is everywhere on the Internet. In recent years many more prospective clients come into my office already armed with a good deal of knowledge about filing personal bankruptcy. Many have read online articles about Chapter 7 bankruptcy, stopping a wage garnishment, Chapter 13 lien stripping, and many other issues of bankruptcy debt relief. No wonder, as bankruptcy lawyers in the bay area and across the country have made unprecedented amounts of bankruptcy information available to consumers through blogs and elsewhere.

One aspect of filing bankruptcy, though, that often still comes as a surprise to some is the requirement that before filing personal bankruptcy, everyone must take a credit counseling course from a non-profit credit counseling agency approved by the United States Trustee. This is actually one of two courses that every person filing bankruptcy must take—the second, “debtor education” course must be taken after we file the client’s bankruptcy case before he or she can get a discharge. We must receive a certificate to file with the court for each of these courses. Those filing a business bankruptcy do not have to take these courses.

To be honest, I’ve always thought these two courses represent more of a silly hoop to jump through than anything else—just an extra burden placed upon debtors filing bankruptcy, and one with dubious value. So I tell all of my bankruptcy clients to take these courses with a big grain of salt. According to the Bankruptcy Code, the credit counseling course must provide “an analysis of such client’s current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to the problems without incurring negative amortization of debt.” (11 USC §111(c)(2)(E)).

The good news is that these courses are fairly painless and can be completed entirely online from the comfort of your home. The first course, the “credit counseling” course generally takes about one hour to complete. Part of that course contains worksheets for the bankruptcy filer to fill in his or her monthly income and monthly household expenses along with debt. It is quite similar to the bankruptcy questionnaire that we ask prospective clients to complete in order to determine their eligibility for Chapter 7 or Chapter 13 bankruptcy. Sometimes a bankruptcy client will call me half way through the course because she wants to make sure her responses match the information supplied to us exactly. I tell such clients not to worry, that the numbers they fill in for the credit counseling course will never become part of their bankruptcy filing, and that frankly, it doesn’t really matter if the numbers match.

The second of the two required bankruptcy courses, the “debtor education” course must be completed by every debtor after filing bankruptcy but before he can receive a discharge from the court. Like the first course, this course can be taken online, relatively painlessly, although it does take two hours to complete. As its name implies, this course is supposed to “educate” the bankruptcy debtor better financial management skills. A laudable goal, perhaps, but I’m skeptical that much of the financial hardship faced by my clients—such as losing a job, incurring large medical bills while uninsured, or foreclosure by mortgage servicing companies uninterested in offering a loan modification—could easily have been avoided had they only had the benefit of such “debtor education.”

I liken both of these courses to something like traffic school for people filing bankruptcy. Don’t take them as the somewhat condescending exercises that they are, but with a grain of salt. We assist our Bay Area bankruptcy clients in locating one of the many non-profit providers who offer these courses online and, frequently, in a language other than English if needed. Just jump through this hoop, so your bankruptcy attorney can help you get your discharge and move on.

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