“Credit counseling” is necessary before you can file a bankruptcy case. But it’s only good for 180 days. Be sure to file before it expires.
The “Credit Counseling” Requirement
You cannot “be a debtor” in bankruptcy without meeting the following requirement:
“… an individual may not be a debtor under [the Bankruptcy Code] unless such individual has, during the 180-day period preceding the date of filing of the [bankruptcy] petition… received from an approved nonprofit budget and credit counseling agency… an individual or group briefing (including a briefing conducted by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in preforming a related budget analysis.”
The 180-Day Limit
Notice how the “counseling” session must take place “during the 180-day period” before filing bankruptcy. This is a strict deadline. When your attorney files your case, he or she must submit a certificate showing that you complied with this requirement and what day you did so. If more than 180 days has passed since the date on that certificate you either will not be permitted to file the case or else if you are your case will in all likelihood be to “dismissed,” throw out—by the bankruptcy court within a few days later. That would cost you hundreds of dollars of extra filing fees, and potentially cost you in other ways.
What IS this “Counseling” Requirement?
There really is not much to it. In practice it’s truly nothing more than a bureaucratic hurdle to jump than any meaningful exercise in real “counseling.” It’s a simple procedure most people do on the internet (although it can be done over the phone if that’s more convenient to you). You simply provide some information about your debts, income, and expenses, and then are virtually always informed that you don’t have enough income to pay your debts and living expenses.
For your trouble you receive a certificate saying that you’ve completed “credit counseling,” which allows you to file bankruptcy.
What’s the Point of this Exercise?
Its supposed purpose was to make you think about alternatives for dealing with your financial troubles other than bankruptcy. In practice it’s instead just an extra minor step you must take to get bankruptcy relief.
To the extent that “credit counseling” was supposed to be a disincentive by pointing people to other alternatives, it has not been effective. The United States Government Accountability Office conducted a study on the request of Congress on this issue of effectiveness, which came up with the following practical conclusion:
The counseling was intended to help consumers make informed choices about bankruptcy and its alternatives. Yet… by the time most clients receive the counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy. As a result, the requirement may often serve more as an administrative obstacle than as a timely presentation of meaningful options.
When Should You Do this “Counseling”?
Because the “counseling” is only good for 180 days, naturally you should not do it unless you expect to be filing bankruptcy within that time.
But a common mistake is to hold off on taking care of it and then having to scramble to get it done before you can file your bankruptcy case. So don’t put it off too long—for all practical purposes it is an absolute requirement and you don’t want to have to file bankruptcy in a hurry to stop a creditor only to have that be delayed because of not having met this “counseling” requirement.
So What Does It Take?
The “nonprofit budget and credit counseling agenc[ies]” which provide this “counseling” service must first be approved by an agency called the U. S. Trustee. A list of the approved agencies for each federal district is provided on the U.S. Trustee’s website—go to that website and click on your state (being sure to look at the appropriate federal district if you living in a state that has more than one district). This list is updated every two weeks. This website also provides listings of the agencies which provide the “counseling” in languages other than English.
Candidly, in most parts of the country there are so many entities providing the “counseling” that the list is quite overwhelming. Also this list does not provide the prices that each charges for the service. Because they vary widely in quality, convenience and cost, ask your attorney for the best one to use.