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The Basics: You Can’t Finish Your Bankruptcy without “Debtor Education”

The same way you can’t START a bankruptcy case without “credit counseling,” you can’t FINISH without “debtor education.”

Bankruptcy law says that if you are an “individual” (not a business entity) you can’t file a bankruptcy case before first receiving, “during the [preceding] 180-day period,” “an individual or group briefing (including… by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in preforming a related budget analysis.” This is the “credit counseling” requirement. It’s difficult to mess up on this one because you can’t file a bankruptcy without proving you’ve done it.

Then after filing bankruptcy, you must also complete “an instructional course concerning personal financial management.” The law is very clear that if, “after filing the [bankruptcy] petition, the debtor failed to complete an instructional course concerning personal financial management,” then the debtor does NOT get a discharge (legal write-off) of his or her debts. This is the “debtor education” requirement. It’s very easy, and dangerous, to forget about.

“Debtor education” is required under both Chapter 7 (Section 727(a)(11))  and Chapter 13 (1328(g)) of the Bankruptcy Code.

What IS “Debtor Education”?

It is a class—which can be done online, over the phone, or in person—“designed to assist debtors in understanding personal financial management.”

The “nonprofit budget and credit counseling agencies” providing the class must be approved by the United States Trustee, based on the “applicable standards” found at Section 111(c)(2). These standards require, among others, that the agencies provide:

… full disclosures to a client, including funding sources, counselor qualifications, possible impact on credit reports, and any costs of such program that will be paid by such client and how such costs will be paid;

… adequate counseling with respect to a client’s credit problems that includes an analysis of such client’s current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to the problems without incurring negative amortization of debt;

… trained counselors who receive no commissions or bonuses based on the outcome of the counseling services provided by such agency, and who have adequate experience, and have been adequately trained to provide counseling services to individuals in financial difficulty, including the matters described in subparagraph (E)….

Practical Consequences of Not Doing “Debtor Education” on Time

After completing the “debtor education” course,” you receive a certificate of completion, your proof that you completed the course. This certificate must be filed at the bankruptcy court, and on time. If your bankruptcy case is ready to be closed before the court receives the certificate of completion, then the judge would not sign the usual order discharging your debts. So your bankruptcy case would close without you receiving a discharge (write-off) of your debts.

Since most likely your main goal in filing bankruptcy is to discharge your debts, be sure not to go through all that effort and expense only to fail to reach that goal.

The Back-up Solution You Should Avoid Needing to Use

If your case closes without the education requirement having been met, you could take the necessary “debtor education” class, meeting the requirement after the closing of the case. At that point, the judge could likely be persuaded to reopen your case, to accept your certificate of completion, and then to enter the discharge order, solving the problem.

But you definitely should avoid getting into this situation to need this solution because:

1) These extra steps would cost you hundreds of dollars more in “re-opening” filing fees and extra attorney fees.

2) From the time of the closing of your case until it’s reopening and the discharge of your debts, all your creditors could take action to collect on their debts.

So, be sure to take the “debtor education” course on time and avoid these consequences.

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