When considering bankruptcy as a solution to overwhelming debt, it’s essential to understand the required steps before and after filing. One of the critical components of the bankruptcy process is the completion of mandatory credit counseling and debtor education courses. These courses are designed to ensure that individuals fully understand their financial situation, explore alternatives to bankruptcy, and gain the skills needed to manage finances effectively post-bankruptcy.

This blog post will explain what these courses entail, why they are required, and how they differ for Chapter 7 and Chapter 13 bankruptcy.

What Is Credit Counseling?

Credit counseling is a mandatory step that must be completed before filing for bankruptcy, whether under Chapter 7 or Chapter 13. This requirement was established by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which aimed to reduce the number of bankruptcy filings and encourage financial education.

Purpose of Credit Counseling

The main purpose of the credit counseling session is to help you assess your financial situation and explore whether there are viable alternatives to bankruptcy. During this session, a certified credit counselor will review your income, expenses, debts, and assets. The counselor may suggest options like debt management plans, debt consolidation, or negotiation with creditors as alternatives to bankruptcy.

The Process of Credit Counseling

1. Finding an Approved Agency: You must complete the counseling session through an agency approved by the U.S. Trustee Program. A list of approved agencies can be found on the U.S. Trustee Program’s website.
2. Session Format: Credit counseling can be completed online, over the phone, or in person. The session typically lasts 60 to 90 minutes.
3. Outcome: At the end of the session, the counselor will provide a certificate of completion, which is valid for 180 days. This certificate must be filed with your bankruptcy petition as proof that you’ve completed the required counseling.

What Is Debtor Education?

Debtor education, also known as a personal financial management course, is required after you file for bankruptcy but before your debts can be discharged. This course is mandatory for both Chapter 7 and Chapter 13 bankruptcy filers.

Purpose of Debtor Education

The debtor education course is designed to help you build better financial habits and avoid future financial problems. It covers topics such as budgeting, money management, using credit wisely, and saving for emergencies. The goal is to equip you with the tools and knowledge needed to manage your finances responsibly after bankruptcy.

The Process of Debtor Education

1. Choosing an Approved Provider: Like the credit counseling session, the debtor education course must be completed through an approved provider. The U.S. Trustee Program’s website lists these approved providers.
2. Course Format: The debtor education course can be taken online, by phone, or in person and typically lasts about two hours.
3. Certificate of Completion: After finishing the course, you’ll receive a certificate of completion. This certificate must be filed with the court before your bankruptcy case is closed. If you fail to submit the certificate, your case could be dismissed without your debts being discharged.

Differences Between Chapter 7 and Chapter 13 Requirements

While the credit counseling and debtor education requirements are generally the same for Chapter 7 and Chapter 13 bankruptcy, there are a few differences in timing and context:

Timing of the Debtor Education Course

• Chapter 7: You must complete the debtor education course after filing for bankruptcy but before the court grants a discharge of your debts. Typically, the course should be completed within 60 days of the first meeting of creditors (also known as the 341 meeting).
• Chapter 13: Because Chapter 13 involves a repayment plan that lasts three to five years, the debtor education course can be completed at any time after filing, but it must be done before making the final payment under your plan.

Context of the Courses

• Chapter 7: In Chapter 7, where most of your debts are discharged without repayment, the focus is often on understanding how to rebuild credit and manage finances with a fresh start.
• Chapter 13: In Chapter 13, since you are repaying your debts over time, the education often emphasizes budgeting and sticking to a long-term financial plan.

Why These Courses Are Important

Credit counseling and debtor education are not just bureaucratic steps; they play a vital role in the bankruptcy process. These courses are designed to:

1. Ensure Informed Decision-Making: Credit counseling helps ensure that bankruptcy is the right choice for you by exploring all other possible alternatives.
2. Promote Financial Responsibility: The debtor education course provides you with practical tools and knowledge to help prevent future financial problems and ensure long-term financial health.
3. Legal Compliance: Completing these courses is mandatory. Failure to do so can result in your bankruptcy petition being denied or your case being dismissed without a discharge of your debts.

Conclusion

Navigating the bankruptcy process can be complex, but understanding the mandatory credit counseling and debtor education requirements can help you prepare for what lies ahead. These courses are designed to support you in making informed decisions about your financial future and equip you with the knowledge to manage your finances better post-bankruptcy.

If you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, make sure to complete these courses with an approved provider and keep track of the certificates required by the court. By doing so, you’ll not only comply with legal requirements but also set yourself on a path to financial recovery.

Schedule a free bankruptcy consultation with Jennifer Weil, a New Jersey bankruptcy attorney, to discuss your options.