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Credit Counseling Requirement in Bankruptcy
In 2005, Congress passed and the president signed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a bankruptcy reform law. One of the new requirements BAPCPA imposes on a new bankruptcy debtor is that they receive credit counseling from an approved credit counseling agency before the bankruptcy filing. A bankruptcy lawyer experienced in consumer credit law, like one from Great Lakes Bankruptcy Center, PLLC in Mount Clemens, Michigan, can help debtors determine whether bankruptcy is the appropriate course of action for them and can further advise them about the credit counseling requirements.
Credit Counseling Briefing
Specifically, a debtor must receive an "individual or group briefing" from a nonprofit budget and credit counseling agency within 180 days before filing for bankruptcy. The briefing can be in person, by telephone or via the Internet. The law provides that the briefing must "[outline] the opportunities for available credit counseling and [assist] such individual in performing a related budget analysis." If a debt management plan is developed in the course of the required counseling, it must be filed with the bankruptcy court.
Approved Credit Counseling Agencies
In most states, the U.S. trustee maintains a list of approved credit counseling agencies for use in the court districts in those states. In some states, the list is approved by bankruptcy administrators. The list of approved agencies is available on each individual U.S. court's Web site. An approved agency is first on the list for a six-month probationary period, renewable in one-year increments. Approval can be revoked at any time. Interested persons can ask the court to review the approval of any agency. To obtain approval, an agency must have qualified, experienced counselors who provide adequate counseling and have no financial interest in the counseling outcome; handle client funds securely; maintain an independent board of directors; charge reasonable and sliding scale fees; make certain disclosures; possess financial security to oversee repayment plans of clients; and maintain "quality, effectiveness, and financial security of the services it provides." At Great Lakes Bankruptcy Center, PLLC, we only recommend agencies that employ U.S. workers. We never recommend agencies that outsource to foreign call centers. We hope that's something that is important to you it's important to us.
Exceptions to the Credit Counseling Requirement
There are some exceptions to the counseling requirement for certain debtors in particular situations. First, the Bankruptcy Court may waive the counseling requirement if there are "exigent circumstances" and the debtor has made a request for counseling that was unable to be provided within five (5) days. Second, a debtor is excused from the requirement if incapacitated by mental illness or deficiency, if physically impaired such that he or she is unable to participate with reasonable effort or if they are on active military duty in a combat zone. Third, counseling is not required if the trustee or administrator in a particular court district determines there are not enough approved credit counseling agencies available.
Criticisms of the Requirement
The credit counseling requirement has many critics. One argument is that it is too little and too late for a debtor in bad enough financial shape to be on the brink of bankruptcy. Supporters of the requirement feel that it will weed out people who are in financial crisis because of their own voluntary behavior; however, counseling agencies have found that most people counseled have had legitimate problems not caused by their own recklessness. Dismissal of a bankruptcy case for not obtaining required counseling is seen by some as a harsh treatment for a debtor facing foreclosure or repossession. Finally, depending on the interpretation of the judge, the dismissal could weaken the automatic stay in a subsequent bankruptcy filing.
Consumers considering bankruptcy as a future option should contact our office to discuss the credit counseling requirement that is required before the bankruptcy filing. The experienced consumer and bankruptcy law attorneys at Great Lakes Bankruptcy Center, PLLC in Mount Clemens, Michigan can answer your questions and enroll you in an appropriate course with an approved credit counseling agency.
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