What is pre-bankruptcy credit counseling?

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 added a requirement for all personal bankruptcy filings. It states that the filer must complete a pre-bankruptcy counseling session within 180 days prior to the filing date.  This applies to Chapter 7, Chapter 11 and Chapter 13 filings.

How pre-bankruptcy credit counseling works

  1. First you must find a credit counseling agency that’s approved by the Department of Justice to satisfy this requirement.
    1. The DOJ even has agencies that provide the credit counseling class in languages other than English and Spanish.
  2. The counseling session can be done online, over the phone or in person if there is an agency in your local area.
  3. A typical session lasts between 60 to 90 minutes. During that time:
    1. The counselor evaluates your personal financial situation, including your debts and budget.
    2. You discuss alternatives to bankruptcy and explore if any would allow you to avoid filing.
    3. In some cases, you may even arrange a debt repayment plan that may be used during your filing; this is primarily for Chapter 11, but may also apply for Chapter 13.
  4. There is a fee for filing that’s generally around $50 – it varies by state.
    1. If you can’t afford the fee, make sure to ask for a fee waiver prior to your credit counseling session; counseling organizations are required to provide counseling for free if you can’t afford to pay
  5. Once you complete the session, you must get a credit counseling certificate that you can provide to the courts to verify you completed the course with an approved agency.
  6. This session must be completed within 180 day prior to your filing date. In other words, you have to take the course sometime within 6 months before the date you officially file.

3 things to know about pre-bankruptcy credit counseling

 

#1: Credit counseling vs. debtor education

It’s important to note that pre-bankruptcy credit counseling and post-filing debtor education are not the same. Both are requirements when you file for personal bankruptcy, regardless of the Chapter.

The debtor education requirement must be completed after you’ve filed, but prior to final discharge of your debts. The education class typically lasts a few hours; there is typically a fee between $50 and $100. As with pre-bankruptcy counseling, the session fee may be waived if you indicate in advance that you can’t afford to pay it. Once you complete the education class, you receive another certificate that’s separate from the pre-bankruptcy counseling certificate. This clears the way for final discharge.

#2: Make sure to check with the U.S. Trustee Program

Not all credit counseling agencies are approved by the U.S. Trustee Program under the Department of Justice to provide the certification for pre-bankruptcy credit counseling. You must take the extra step of check the Trustee Program’s website to make sure providers for both pre-bankruptcy credit counseling and post-filing debtor education are approved in the judicial district where you wish to file.