If you file for Chapter 7 or Chapter 13 bankruptcy, you must receive credit counseling from an approved agency before filing your case. In addition, you must complete a course in personal financial management (also called a debtor education course) before you can receive a bankruptcy discharge. Below, we discuss some of the new rules that recently went into effect regarding credit counseling and debtor education courses. (Learn more about the credit counseling and debtor education requirements in bankruptcy.)
What Is Credit Counseling and Debtor Education in Bankruptcy?
In order to file for bankruptcy and obtain a discharge, you must complete a credit counseling and a debtor education requirement.
Credit Counseling. Before filing for bankruptcy, you are required to obtain credit counseling from an approved agency. The purpose of credit counseling is to help you review your financial options and determine whether you may be able to pay off your debts through a repayment plan without having to file for bankruptcy. In general, you will provide the credit counselor with information regarding your income, expenses, and debt obligations. The counselor will analyze your budget, discuss your options, and propose a repayment plan if it’s feasible. You don't have to pursue a repayment plan though, even if the counselor recommends it.
Debtor Education. After filing your bankruptcy case, you must also complete a debtor education course with an approved provider before you can receive a discharge. The purpose of the debtor education course is to instruct you on how to make good financial decisions so that you won’t have to file for bankruptcy again in the future. In most cases, the debtor education course will cover topics such as developing a budget, managing money, using credit wisely, dealing with unexpected financial emergencies, and teach you about consumer protection laws and resources.
New Rules Regarding Credit Counseling and Debtor Education
Recently, the Executive Office for U.S. Trustees (EOUST) published new rules on credit counseling and debtor education requirements that became effective April 15, 2013. The following are some of the important changes that bankruptcy debtors should be aware of.
Fees and Fee Waivers
The fees that credit counseling agencies and debtor education providers charge must be reasonable. The new rules state that a reasonable fee is $50 or less. If the provider wants to charge more, it must seek approval from the EOUST by showing that its operating costs justify the higher fee. If a third party (such as your attorney) referred you to a particular provider and directly paid the fee on your behalf, the provider must also disclose how much it charged the attorney. This allows debtors to account for any difference between what their attorney charged them for the course and the actual fee the attorney paid.
In addition, the new rules state that a debtor whose household income falls below 150% of the poverty line is presumed to be eligible for a fee waiver for the credit counseling (meaning the debtor does not have to pay anything for the course). But an agency or provider may be able to charge a reduced fee if it determines, based on the financial information the debtor submits, that the debtor can afford part of the fee.
Quality of Counseling
The new rules require agencies to provide the same level of counseling experience and service regardless of whether the debtor takes the course in person, by phone, or over the Internet. If the provider offered the counseling over the Internet or by an automated phone system, an individual counselor must contact the debtor to discuss his or her financial situation by email, phone, or live chat.
The agency must also provide a written budget analysis and recommendations that are specifically tailored to the debtor’s financial situation. This means that generic, computer-generated recommendations typically will not be sufficient.
If you take the debtor education course by phone or over the Internet, you will need to take a test prior to completing the course. If you fail to complete the test or get a score below 70%, an instructor must contact you directly. If you took the course over the phone, the communication must be made either in person or by phone. If you took the course online, it can be by phone, email, or live chat.
Privacy and Advertising
The new rules also establish that providers can’t sell your information to third parties without obtaining your written permission first. In addition, providers can’t subject you to commercial advertising or market financial products or services to you during the instructional course.