When you file for Chapter 7 or Chapter 13 bankruptcy, you must satisfy both a credit counseling and a debtor education requirement. With a few exceptions, all debtors are required to receive credit counseling from an approved agency before they can file for bankruptcy. Further, you cannot receive a discharge unless you also complete a debtor education course (also called a financial management course) after filing your case. Read on to learn more about the difference between the credit counseling and the debtor education requirement in bankruptcy.
(For details on each of these bankruptcy requirements, see our articles in Credit Counseling & Debtor Education Requirements in Bankruptcy.)
The Credit Counseling Requirement in Bankruptcy
Before you can file for Chapter 7 or Chapter 13 bankruptcy, you must receive credit counseling from an agency approved by the U.S. Trustee’s office (or the Bankruptcy Administrator if you live in Alabama and North Carolina). This requirement may be satisfied by completing a credit counseling course in person, over the phone, or online. (To learn about the few exceptions to this requirement, see Exceptions to the Credit Counseling Requirement.)
When to Complete Your Credit Counseling
You have to complete the credit counseling course and obtain a certificate of completion within the 180-day period prior to filing your case. When you file your case, you must file your certificate of completion with the court to prove that you have satisfied this requirement. If you fail to complete the credit counseling course before filing your case, the court will dismiss your bankruptcy.
The Purpose of Credit Counseling
The purpose of credit counseling is to determine whether you have any alternatives to filing for bankruptcy. The credit counseling course focuses on your income, expenses, and debts to see if you can afford to work out your obligations without resorting to bankruptcy (such as through a repayment plan). Typically, the course simply confirms that you have no feasible options other than bankruptcy.
What to Expect from Credit Counseling
As discussed, the credit counseling course focuses on whether you can afford to get back on your feet without having to file for bankruptcy. This means that you will be asked to provide information regarding your income and existing obligations so that the credit counseling agency can analyze your budget and prepare a repayment plan if feasible. Keep in mind that you only have to attend and complete the credit counseling course. You are not required to follow the agency’s proposed repayment plan.
The Debtor Education Requirement in Bankruptcy
After you file for Chapter 7 or Chapter 13 bankruptcy, you are required to complete a debtor education course before you can receive your discharge. The debtor education requirement is separate from and in addition to the credit counseling requirement in bankruptcy. Essentially, you need to complete a credit counseling course before you can file your bankruptcy and a debtor education course before you can receive a discharge. (To learn about the few exceptions to this requirement, see Exceptions to the Debtor Education Requirement.)
When to Complete Your Debtor Education Course
You must complete the debtor education course after your case is filed. If you filed for Chapter 7 bankruptcy, you have to complete the course within 60 days of the initial date set for your meeting of creditors (also called the 341 hearing). In Chapter 13 bankruptcy, it must be completed before you make your last plan payment.
Similar to credit counseling, you must use an approved agency and file your certificate of completion with the court (you can complete the course in person, over the phone, or online). If you fail to complete the debtor education requirement, the court can close your case without a discharge and you will have to incur additional fees to reopen your case to file your certificate.
The Purpose of Debtor Education
Unlike credit counseling, debtor education focuses on life after bankruptcy. It teaches you how to manage your money, use credit wisely, and make the most of your bankruptcy discharge. The purpose of debtor education is to educate you on how to make sound financial decisions to avoid bankruptcy in the future.
What to Expect from Debtor Education
Since the debtor education course will cover money management skills, you will still have to develop a budget using your income and expenses after bankruptcy. But in contrast to credit counseling (which tries to determine whether you need to file for bankruptcy), the focus of the course will be primarily in educating you about how to budget, manage your money, and use credit wisely after you receive a discharge in bankruptcy.
To find an approved agency for either the credit counseling or debtor education course, see How to Find an Approved Credit Counseling or Debtor Education Agency.