In 2005, Congress added a step to the bankruptcy filing process that is applicable in all 50 states and the District of Columbia. This is the step of credit counseling. All men and women who are filing for a Chapter 7 or a Chapter 13 bankruptcy are required to undergo credit counseling from an approved agency before the filers can proceed with the process.
As well, if you are going to get a discharge in your bankruptcy, then you may need to take another class on personal financial management. In some cases, people can get exempt from these requirements, but the application process for exception is arduous and only a few specific situations will be granted exemption. The government treats these classes as mandatory, so it is important that you regard them as so.
You won't have to go through the counseling process if the U.S. Trustee certifies that there is not an appropriate agency available to you in the district where you are filing. Most of the time, there are counseling agencies which can work over the phone or online, so it is rare for filers to gain exemption through the excuse of unavailability. You can also avoid counseling if you had to file for bankruptcy immediately due to a garnishment or foreclosure and didn't have the time to take the course. As well, if you were unable to obtain counseling within five days of requesting it you can bypass this requirement.
Also, if you have a physical disability that would keep you from attending counseling, and you don't have access to a phone or a computer to take the counseling through these mediums, this can sometimes act an exemption. Also, if you are mentally incapable of undergoing counseling, or if you are on active duty in a military combat zone then you can be exempt. You must take counseling within 180 days of your bankruptcy filing, or else you will be required to undergo counseling again because it is a time sensitive issue.
The pre-bankruptcy credit counseling requirement is upheld in almost all bankruptcy cases. You will need to consult a non-profit credit counseling agency to take the course. The consultation will determine whether or not you have other options to reduce your debt without filing for bankruptcy. The credit counselors may ask you to explore possibilities of debt negotiation or options regarding selling property and consolidating expenses.
The government states that the main point of credit counseling is to determine whether or not the filer has other options that he or she could explore before declaring bankruptcy. The counseling is required even if it is obvious that you can't afford a repayment plan or you are facing unfair debts and need to get them discharged through bankruptcy. Many times people with high medical bills, repossessed cars, and credit card debt with high interest will do better to file and get these expenses discharged.
The counseling agency that you work with will probably prepare a budget based on your income and expenses and review all of your different options for repaying your debts. In most cases, the counseling agency will agree that you don't have any other feasible options and will support your decision to file. Interestingly enough, the bankruptcy law only requires that you participate in the counseling. The law does not demand that you do along with whatever the agency proposes for you. You are not required to agree to a payment plan even if it is recommended.
While you aren't required to agree with the counselors, it is important to know that the court may agree with your counselor and may not approve your bankruptcy as a result. The court may use documents from your counselor as a reason to question your Chapter 7 bankruptcy or push you to file for a repayment plan. If this happens, you will have an opportunity to argue about whether you should have to repay all of your debts.
Most credit counseling agencies will charge for their services, but if you cannot afford the fee then the counseling agency is required by law to provide their services for free or at a reduced rate. There may be a variety of counseling agencies in your area which you can choose from, so you can pick an agency that provides complimentary services if they are necessary. The services are all required to odder a sliding fee scale and waiver of fees altogether for people that are below a certain income level. Those who are below 150% of the poverty level are entitled to receive credit counseling for free. The Office of U.S. Trustee says that a reasonable fee for these services should range from free to $50, depending on the circumstances.
To fine an approved pre-bankruptcy credit counseling agency, you can look at the list of approved organizations on the U.S. Trustee's Website. The credit counseling agency that you choose must be approved or else it will not count. After you have received pre-credit counseling you will need to obtain an official certificate of completion from the counseling agency and will need to file this along with your bankruptcy petition. You may also need to provide an Exhibit D to Voluntary Petition document which will show that you complied with the credit counseling requirement. If you want more information, then you can talk to a local bankruptcy attorney near you and learn how this requirement will affect you.