Recently on our bankruptcy forum a user asked, “I am going to file for Chapter 7 bankruptcy. I heard that I have to take some type of credit counseling course before I file. Is this true and what could this possibly accomplish?”
According to current bankruptcy laws, all debtors must complete a credit counseling course provided by a government approved organization within 180 days before they file their bankruptcy petition. At the completion of the course the debtor will receive a certificate of completion which must be filed with the court.
Credit Counseling Course what can I expect?
Credit counseling courses will include an evaluation or your personal finances, information about creating a budget and a financial plan, and information about alternatives to filing for bankruptcy.
Counselors should also discuss what decisions led to your financial crisis and steps you can take to avoid financial hazards in the future. Because the course lasts only 60 to 90 minutes and may be conducted over the phone or online, there is some question about its overall effectiveness.
Why do I have to take a credit counseling course?
Pre-bankruptcy counseling was a requirement which was passed when the bankruptcy laws were overhauled in 2005, making it much more difficult for debtors to have their debts discharged through Chapter 7 bankruptcy. Proponents of the new law argued that filing bankruptcy had become too easy, and debtors were giving too little thought to the consequences of filing bankruptcy.
Opponents of the law argued, however, that creating too many requirements and unnecessary hurdles for debtors would only benefit large creditors (i.e., credit card companies) who were hoping to curb the number of bankruptcy filings and subsequent discharges for unsecured debt.
So do the credit counseling courses really do anything except create yet another governmental hurdle to your bankruptcy filing? It depends on who you talk to.
The good news is the course is relatively inexpensive and does not take too long to complete. In fact, if you are not able to pay for the course the credit counseling agency is required to provide it to you for free. If you can pay, you may pay as little as $50.
Debtor education courses
Now, you didn’t specifically ask about courses that must be taken after completing your bankruptcy, but the bankruptcy law also requires you to complete a post debtor education course. This course is less about alternatives to bankruptcy and more about developing a budget, managing credit, and using your money wisely.
This course may take a bit longer, generally about 2 hours, and could cost a bit more. It may, however, be offered for free if you cannot pay for it. At the completion of the debtor education course you should also be provided with a certificate of completion.
Bottom line about a Credit Counseling Course
Whether or not the credit counseling course and the follow-up debtor’s education course are worthwhile seems to be a matter of opinion. If you do not understand budgeting and need extra help to learn how to manage credit, these courses could help give you information to avoid making bad financial decisions which could lead to a second bankruptcy.
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