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Credit Counseling and Debtor Education Requirements in Personal Bankruptcy

kconnors from morguefile.comCongress passed a massive overhaul of the bankruptcy system, known as the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), in 2005. The law changed many features of individual bankruptcy, including the addition of mandatory counseling and education. A debtor must complete a course of counseling prior to filing a bankruptcy petition, and must take an education course before the court may grant a discharge of debt at the end of a case. The Los Angeles bankruptcy courts maintain a list of approved organizations that offer the required credit counseling and debtor education services.

General Requirements for Counseling and Education Providers

BAPCPA requires the government, through the United States Trustee Program, to maintain a list of approved credit counseling and debtor education services, and provides a list of qualifications for approval. 11 U.S.C. § 111. All providers must be organized as nonprofits. They must provide counselors who are qualified to offer financial counseling or education, disclose material information like funding sources to clients, charge only reasonable fees, and have procedures for handling client funds held in trust. Qualifying organizations must have a board of directors that is generally disinterested in the financial outcome of the organization’s counseling services.

Credit Counseling

A debtor must include a certificate with their bankruptcy petition showing completion of a credit counseling program within the previous 180 days. 11 U.S.C. § 109(h). A court may dismiss any petition that does not include such a certificate. The purpose of credit counseling is to determine if the debtor should file for bankruptcy or pursue a less formal plan of repayment, but the course is required even if the need for bankruptcy appears obvious. An exemption from the counseling requirement is possible if the debtor certifies one of the following to the court: that exigent circumstances prevented completion of the course, that an approved credit counseling service failed to provide services within seven days of the debtor’s request, or that other circumstances merit an exemption.

Debtor Education

Once a bankruptcy case is open, a debtor must complete a debtor education course as a condition of obtaining a discharge of debt. Bankruptcy courts are prohibited in both Chapter 7 and Chapter 13 cases from granting a discharge if a trustee or bankruptcy administrator determines that the debtor has not completed a “personal financial management” education course. 11 U.S.C. §§ 727(a)(11), 1328(g). The course is supposed to teach methods of managing personal finances wisely, so as to avoid future bankruptcy filings. Exemptions from the debtor education requirement are available on the same grounds as those for credit counseling.

When individuals find that their income is not enough to allow them to service their debts, Chapter 7 or Chapter 13 bankruptcy could offer them a way to rearrange their finances and pay their bills. Bankruptcy allows people to liquidate assets and pay debts with the proceeds, structure a new payment schedule for outstanding debts, and, when the case ends, obtain a discharge of the remainder of some debts. Bankruptcy attorney Devin Sawdayi has helped clients in the Los Angeles area with personal bankruptcy matters since 1997. To schedule a free and confidential consultation, please contact us today online or at (310) 475-9399.

More Blog Posts:

Procedures for In Forma Pauperis Filings in Bankruptcy Cases, Los Angeles Bankruptcy Lawyer Blawg, November 18, 2013

Chapter 7 Bankruptcy Case Delayed Because Debtor Did Not Personally Sign Petition, Los Angeles Bankruptcy Lawyer Blawg, October 25, 2013

Understanding the Chapter 7 “Means Test,” Los Angeles Bankruptcy Lawyer Blawg, October 4, 2013

Photo credit: kconnors from morguefile.com.