Satisfying the Credit Counseling Requirement

Law Office of Robert L. Firth Nov. 20, 2017

The credit counseling requirement is not at all hard to meet. You have to do it before you can file a bankruptcy case, so get it over with.

You can’t file an individual bankruptcy case without first taking this one, relatively easy step—the so-called “credit counseling.” It’s probably helpful to consider it nothing more than a bureaucratic formality. It almost never serves as any kind of helpful “counseling.” But you definitely need to take of it and appropriately to avoid problems when you file bankruptcy.

The Requirement

The part of the U.S. Bankruptcy Code titled “Who may be a debtor,” says you can’t file a bankruptcy unless you

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.

See Section 109(h) of the Bankruptcy Code.

This is easier than it sounds.

What’s Actually Required

Not much. It’s actually a simple procedure you do on the internet, or by phone if you prefer. You simply provide some information about your debts, income, and expenses, and then are almost always told that your income is not sufficient to pay for your expenses.

The practical benefit of this “counseling” is that you get an emailed certificate saying that you’ve completed “credit counseling.” That certificate lets you file bankruptcy. You can’t without it. Your lawyer attaches it to your initial bankruptcy petition.

180 Days before Filing

The “counseling” session must take place “during the 180-day period” before filing bankruptcy. So be sure that you’re going to be filing bankruptcy within that length of time after you do it. Otherwise, if your bankruptcy filing is delayed you may have to do the counseling again closer to your filing date.

Usually people run into the opposite problem, putting it off too long. Be sure not to get into the position of needing to file bankruptcy quickly but not being able to. Get the credit counseling step out of the way as soon as you know that you’re filing soon.

Reason for this Requirement

The supposed reason for this requirement was to encourage people to consider options other than bankruptcy. Some say that its real purpose was to bureaucratically discourage people needing bankruptcy relief. In the end it does not seem to be an effective disincentive.

For example, the United States Government Accountability Office has issued a report 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.

Who To Contact to Get this “Counseling,” and How Much Does it Cost?

The providers of this service must first be approved by the U. S. Trustee. (That’s an agency which oversees certain aspects of the bankruptcy system.) You can find a list of the approved agencies for your area on the U.S. Trustee’s website. In the dropdown list click on your state. (Look for your local federal district if you state has more than one).

Frankly, this will lead you to a long and not very helpful list of approved providers. They vary widely in quality, convenience, and cost. So ask your bankruptcy lawyer which one he or she recommends, and for other helpful information about that particular provider.