A person who files for bankruptcy must take two educational courses before receiving a bankruptcy discharge wiping out qualifying debt. Before you can file for Chapter 7 or Chapter 13 bankruptcy, you must consult with a nonprofit credit-counseling agency to see whether you can feasibly handle your debt load outside of bankruptcy, without adding to what you owe.
When you file for bankruptcy, you must fulfill several requirements. For instance, you must:
You'll prove that you've taken the credit counseling course by filing the certificate of completion along with your bankruptcy paperwork (no later than 15 days after your bankruptcy filing date). You'll also receive a copy of any repayment plan you may have worked out with the agency.
There are a few exceptions to this requirement which you can learn about in Exceptions to Pre-Bankruptcy's Credit Counseling Requirement.
Credit counseling gives 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.
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 for dealing with the debt other than filing for bankruptcy.
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 your other bankruptcy documents.
When the Court Agrees 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 might 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, you'll have an opportunity to explain why you shouldn't have to repay all of your debts.
Your bankruptcy jurisdiction must approve the particular course that you take. You can find an approved provider by visiting the U.S. Trustee's website. Click on the link entitled “Credit Counseling & Debtor Education” and then “List of Approved Credit Counseling Agencies.” After the list populates, scroll down until you find your court's jurisdiction. You'll want to choose a provider that falls in that section to ensure that you get credit for the course.
Credit counseling agencies can 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 by offering a sliding fee scale, as well as a fee waiver for people below a certain income level (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—previously stated that a “reasonable” fee might range from free to $50, depending on the circumstances.
Bankruptcy filers must take a second course—called debtor education—after filing for bankruptcy. The debtor education course provides the filer with financial management tools, such as tips for creating a budget and rebuilding credit after bankruptcy.
You'll prove that you've completed the course by filing the certificate of completion with the court (or the provider might do so for you). The certificate must be filed within 60 days of the date first set for the meeting of creditors—the one court appearance all filers must attend—or the court will dismiss the case.
(Learn more about both bankruptcy courses in Credit Counseling & Debtor Education Requirements in Bankruptcy, and other bankruptcy requirements in Bankruptcy Filing & Procedures.)