Credit Counseling and Financial Management

Many of my clients are shocked to learn that they are required to take not one, but two courses in order to get a discharge in a personal bankruptcy.  As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Congress mandated that all individuals filing for bankruptcy under Chapters 7, 11, 12 or 13, complete a course in Credit C0unseling prior to being allowed to file a petition for relief (i.e., before even filing for bankruptcy).  In addition, Congress mandated a second course after filing the bankruptcy petition in Financial Management be completed in order for the Debtor to receive her discharge.

Why you ask?  Well, maybe you didn’t ask, but many of my clients do ask why.  Because the drafters of BAPCPA were of the belief that people who sought protection from creditors under the Bankruptcy Code did so because of reckless, careless and irresponsible behavior.  The theory, apparently, is that people rack up debt because they incapable of properly handling their finances.  While that may be true in some cases, and while I certainly advocate for courses on understanding finances and credit be taught to all middle school and high school children, in my experience it is by no means the norm among my clients.  In fact, almost all of my clients are coming to me after a serious personal or family issue that has caused them to be unable to pay their debts, such as:

(1) A divorce (which takes a family income sufficient to handle the finances of a single household, and divides that income into two households;

(2) A severe illness in the family (which causes medical bills, or credit card charges to pay medical bills to accrue – and also can mean significant time away from work);

(3) Mortgage foreclosures (often due to one of the other issues on this list, but also linked to market conditions that make it impossible to sell a home that is worth less than is owed);

(4) A death in the family; and/or

(5) Unemployment or business failure.

For these people, the course I have advocated for in middle school or high school, together with all the courses Congress can think of will likely not help.  There are other resources, such as universal health care, job retraining, mortgage modification or housing assistance might help, but bankruptcy is likely the only course of action that will allow them to begin to put their financial lives back together.

Both courses can be done either in-person, over the phone, or (in most cases) on-line. The cost of credit counseling (the first or pre-filing course) is usually between $35-$50.  The cost of financial management is usually between $15-$50 (although I have seen courses as low as $11).  I typically recommend courses to my clients based on feedback that I have received from previous clients, balanced with reasonable prices.  However, if you are willing and able to take some time to do a little research, you may be able to find a course that is priced better. But be careful, not all courses are accepted in all states or districts.  The United States Trustee maintains a list of courses approved for each district.

There are a number of other issues that can be traps, and it is best to consult with your bankruptcy attorney before taking the courses, such as:

(1) The Pre-filing course in Credit Counseling, is only valid for 180 days (about 6 months) prior to filing your bankruptcy case.  If there are issues that require you to wait to file, you may end up needing to re-take the course before filing for bankruptcy.

(2) The Post-filing course in Financial Management (or Debtor Education) must be taken after you file your case.  If it is taken prior to filing, the course will need to be repeated after you file.

(3) The Post-filing course in Financial Management (or Debtor Education) must be taken — and the certificate file — prior to the expiration of 60 days after the first scheduled meeting of creditors.

As you can see, timing is everything.  While some of the timing issues can be cured with some inconvenience (retaking the course), some, such as No. 3 above, can result in your case being dismissed (at best) or discharge being denied (at worst).  If the case is dismissed, you will have to start over from scratch, by filing a new case.  If discharge is denied (usually in a Chapter 7 case with assets) then you will still have all the disadvantages of your assets being sold to satisfy (in part) some of your creditors, but not the benefit of the discharge.

Before filing bankruptcy it is important that you engage an experienced bankruptcy attorney, to schedule a free consultation call the Law Offices of James Wingfield at 508-797-0200, or visit the contact page at our website today.