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Understanding the Credit Counseling Requirement

How Do You Qualify for Bankruptcy?

In order to file for bankruptcy, you must first meet certain requirements. Before filing, you must fill out and submit official bankruptcy forms, detailing the various aspects of your current financial situation. You will also be required to pay a bankruptcy filing fee (you may request installments or may request that the fee be waived altogether).

One important requirement you must complete before filing for bankruptcy is attendance at credit counseling. This is a requirement for everyone who wishes to file for Chapter 7, Chapter 11, Chapter 12, Chapter 13, or any other form of bankruptcy. At the time you file or within 15 days of filing, you will be required to show a certificate of proof that you have completed this counseling. The pre-bankruptcy credit counseling course is one of two; the other, called “debtor education,” you will need to attend after you have filed for bankruptcy. You must attend credit counseling with an approved agency. You can find a list of approved credit counseling agencies on the U.S. Trustee Program’s website (https://www.justice.gov/ust/eo/bapcpa/ccde/CC_Files/CC_Approved_Agencies_HTML/cc_arkansas/cc_arkansas.htm).

What Is the Purpose & Process of Credit Counseling?

Credit counseling is designed to help you determine if you need to file for bankruptcy or if another option for debt repayment is appropriate. Even if you feel that it is obvious you will not be able to complete a repayment plan, you will need to attend credit counseling before you can file for bankruptcy.

During your credit counseling session, the agency will examine the various aspects of your current financial situation. Typically, it will create a budget based on your income, bills, debts, and other expenses. Based on this budget, the agency will make a recommendation, either for a debt repayment plan or bankruptcy. While you are required to attend credit counseling, you do not necessarily have to follow the agency’s recommendation. For example, if the agency finds that a repayment plan is feasible based on your budget, you do not have to agree to this plan. However, you will need to file the agency’s recommendation/plan when you file your official bankruptcy forms.

If the credit counseling agency recommends a repayment plan and the bankruptcy court agrees that this plan is feasible, the court may try to adjust your Chapter 7 filing to a Chapter 13. If this occurs, you will have an opportunity to explain why you believe you should not or unable to pay back your debts. In such cases, it is wise to have the counsel of an experienced bankruptcy attorney on your side.

If you are unable to attend credit counseling in person, it is possible to complete the course over the phone or via the internet. Non-English language credit counseling is also available; contact Burgess Law Firm to learn more.

How Much Does Credit Counseling Cost?

If you are considering filing for bankruptcy, it is no surprise that you are concerned about the cost of attending credit counseling. Unfortunately, many credit counseling agencies charge relatively substantial fees (around $50, according to most reports). If, however, you are not able to afford the fee, the agency is required to work with you on costs.

If you fall below a certain income level, you may be entitled to have your credit counseling fee waived. Counseling agencies must also provide reduced rates for people who cannot afford the full fee. In such cases, rates are typically determined along a sliding scale based on income.

Post-Bankruptcy Credit Counseling: Debtor Education

After you have officially filed for bankruptcy, you will be required to take a second credit counseling course. This course, known as debtor education, is designed to provide you with all the tools you need to manage your finances in the future. Debtor education typically includes information on budgeting, rebuilding your credit, and similar topics.

Once again, you’ll need to prove that you have completed this second credit counseling course by filing a certificate of completion within 60 days of the first set date of the 341 hearing or “meeting of creditors.” Failure to complete debtor education and/or failure to prove that you have completed debtor education may result in your case being dismissed.

Exceptions to the Credit Counseling Requirement

There are a few very limited exceptions to the credit counseling requirement. Essentially, in order to be exempted from attending credit counseling, you must prove that you had to file for bankruptcy immediately and/or you were unable to attend credit counseling for some reason.

You may be exempt if there are no credit counseling courses available in your area, as confirmed by the U.S. trustee or bankruptcy administrator. This is extremely rare, however, given that you are allowed to complete your counseling courses by phone or internet.

You may also be exempt if you can prove “exigent circumstances” or, in other words, if you can prove that failing to file for bankruptcy immediately would result in substantial harm. You must also demonstrate that you contacted a counseling agency but were unable to attend/complete credit counseling within one week (seven days). Some of the very few reasons that you may have to file for bankruptcy immediately include the threat of wage garnishment or public auction.

Lastly, you may be exempt from the credit counseling requirement if you have a disability that prevents you from attending/completing the course, are incapacitated (mentally), or are serving active military duty in a combat zone.

As previously mentioned, these exemptions are exceedingly rare. If you are considering filing for bankruptcy, you should prepare to complete credit counseling and make sure that you are able to attend debtor education as well.

If you have questions, feel free to contact Burgess Law Firm at (870) 293-6004 and request a free consultation with our Batesville bankruptcy lawyer.