What Is Credit and Debt Counseling in Bankruptcy?

An individual filing for bankruptcy must take two courses before receiving debt relief: a credit counseling courseand a debtor education course. The requirement applies to every natural person who files for individual bankruptcy, regardless of the chapter type. A business entity, such as a partnership, limited liability company, or corporation, does not have to take the credit and debt counseling courses.

Credit Counseling: The "First" Course

Before you file for bankruptcy, it's important to be certain that it's the right choice because a bankruptcy filing can have a severe and lasting impact on your credit, assets, and income. The first course—the pre-filing credit counseling class—helps you make sure that bankruptcy is right for you. In the course, you'll review your finances and explore alternative repayment options. If, after completing the course, moving forward with bankruptcy still makes sense, you'll file a course completion certificate to prove you satisfied the education requirement along with your petition and schedules (the official paperwork that initiates the case). You can take the course online or over the phone and most people complete it in an hour or two.

Debtor Education: The "Second" Course

You'll take the post-filing debtor education course (or "second" class) after you file your bankruptcy. The second course will provide you with financial management tools that you'll be able to rely on after your bankruptcy is over.

In a Chapter 7 bankruptcy, you must file your completion certificate with the court no later than 60 days after the date first set for the 341 meeting of creditors (the hearing that all bankruptcy filers must attend). The court will remind you by sending a notice entitled "Notice of Requirement to File a Certification of Completion of Course in Personal Financial Management." Chapter 11, 12, and 13 filers can submit the completion certificate anytime before making the final payment under the repayment plan.

It's best to get the coursework done promptly because not only is it easy to forget to do, failing to file the certificate will cost you. The court will dismiss your case without discharging (wiping out) your qualifying debt, and you'll have to repay the filing fee to reopen it. Worse yet, in many courts, you won't be able to file the certificate until you file a motion asking the court to accept the late-filed certificate and the judge grants your request (and you might have to file an additional motion asking for your discharge).

Who Must Complete the Courses?

All individuals who file a Chapter 7, 11, 12, or 13 bankruptcy must complete a credit counseling class and a debtor education training course before receiving debt relief—even if the individual's debts are primarily business debts.

This rule includes a husband and wife filing jointly (together). Each must satisfy the requirement. By contrast, business entities, such as a partnership, limited liability company, or corporation, are exempt.

You might be exempt from the requirement if you must file an emergency case, or you're in a military zone. However, be aware that such exemptions are rare.

To find a course that meets the requirements of the courts in your bankruptcy jurisdiction, visit the U.S. Trustee's website and select from a list of authorized providers.