The Pre-Bankruptcy Credit Counseling Requirement

Before you can file for Chapter 7 or Chapter 13 bankruptcy, you must consult a nonprofit credit counseling agency. The purpose of this consultation is to see whether there is a feasible way to handle your debt load outside of bankruptcy, without adding to what you owe.

Credit Counseling Requirements

4o qualify for bankruptcy relief, you must show that you received credit counseling from an agency approved by the U.S Trustee’s office within the 180-day period before you file your bankruptcy. Once you complete the counseling, the agency will give you a certificate of completion that you must file no later than 15 days after your bankruptcy filing date. It will also give you a copy of any repayment plan you may have worked out with the agency.

Finding a Credit Counseling Agency

You can find out which agencies have been approved for your judicial district by visiting the Office of the U.S. Trustee’s website at http://www.justice.gov/ust/; click “Consumer Information” and then “Credit Counseling & Debtor Education” to see the list.

The Purpose of Prebankruptcy Credit Counseling

The stated purpose of credit counseling is to give you an idea of whether you really need to file for bankruptcy or whether an informal repayment plan would get you back on your economic feet. Counseling is required even if it’s pretty obvious that a repayment plan isn’t feasible (that is, your debts are too high and your income is too low) or you are facing debts that you find unfair and don’t want to pay. (Credit card balances inflated by high interest rates and penalties are particularly unpopular with many filers, as are emergency room bills and deficiency judgments based on auctions of repossessed cars.)

The counseling agency usually prepares a budget based on your income and expenses, and then review your options for repaying the debt. In most cases, the agency confirms that you don't have any feasible options, other than bankruptcy, for dealing with the debt.

Bankruptcy law requires only that you participate in the counseling—not that you go along with whatever the agency proposes. Even if a repayment plan is feasible, you aren’t required to agree to it. However, if the agency does come up with a plan, you must file it along with the your other bankruptcy documents.

Caution: The Court Might Agree With the Agency's Plan

If it’s clear from the documents you file that you could complete the repayment plan proposed by the agency, the court may use this as a reason to question your Chapter 7 filing and try to push you into a Chapter 13 repayment plan. If that happens, at least you’ll have an opportunity to argue about whether you should have to repay all of your debts.

Credit Counseling Costs

Credit counseling agencies may charge a reasonable fee for their services. However, if a debtor cannot afford the fee, the counseling agency must provide services free or at reduced rates. This means that the service must offer a sliding fee scale and a waiver of fees altogether for people below a certain income level (below 150% of the poverty level for a family of equal size). The Office of the U.S. Trustee, the law enforcement agency that oversees credit counseling agencies, has indicated that a “reasonable” fee might range from free to $50, depending on the circumstances.