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Step Three: The Credit Counseling Requirement

Bankruptcy law requires that before you file for bankruptcy you receive budget and credit counseling from an approved credit counseling agency and, on completion, file a certificate from that agency. First meet with your bankruptcy attorney because the credit counseling agency may try to dissuade you from filing bankruptcy. It is best to first hear whether your bankruptcy attorney thinks bankruptcy is your best option and why.

The credit counseling requirement is only met if the agency is an approved agency. A list of approved agencies is available at www.usdoj.gov/ust, at your local bankruptcy court, or from your bankruptcy attorney. Approved agencies can provide the counseling in-person, by telephone, or over the internet.

Most agencies charge between $10 to $40 for the pre-filing counseling (often the same amount for a married couple if both spouses are counseled at the same time). If you cannot afford the fee, ask the agency to provide the counseling free of charge or at a reduced fee. Reputable counseling agencies disclose their fee waiver policies up front, for example in a clear statement on their websites.

You can also ask the court in your initial filing to waive the counseling requirement because you are disabled, incapacitated, or on active military duty in a combat zone. Courts are very strict in granting waivers for the first two reasons, so in most cases it is not worth trying to get a waiver. If the court does not grant the waiver, your filing will be dismissed.

While it is possible to ask for a temporary postponement of the counseling requirement until shortly after you initiate the bankruptcy (for example, if you are rushing to use bankruptcy to stop a foreclosure), courts rarely grant such waivers because you can obtain counseling quickly over the phone or internet on an emergency basis. Denial of this waiver request will result in the dismissal of your bankruptcy filing, causing further delay, cost, and even more serious problems for your efforts to protect your home.

The counseling session usually takes less than an hour. The agency will prepare an income and expense budget and review it with you. Be realistic in describing your actual income and expenses. The session will go more quickly if you have written down your basic income and expense information in advance. Try to have a list of your debts handy, for example from a credit report. Spend time to gather all this information because you will need the same information later if you file for bankruptcy.

The agency will review with you any options short of bankruptcy, such as a debt management plan. As discussed in Chapter 12, before signing up for such a plan, carefully consider whether you can afford to make the suggested payments and whether such a plan will solve your financial problems.

If the agency initially convinces you to agree to an alternative to bankruptcy, make sure you get your certificate from the agency in case you change your mind. Then you can use the certificate to meet the bankruptcy counseling requirement as long as you file bankruptcy within 180 days of getting the certificate. The agency cannot refuse to provide you with a certificate because it believes your reasons for filing are inappropriate or not justified.