In 2005 Congress passed new legislation that changed the existing bankruptcy system. The basic idea was to make filing bankruptcy harder to qualify for, particularly Chapter 7, and push more debtors into Chapter 13 bankruptcy. A Chapter 7 is basically where an individual can wipe out all unsecured debt with little or no cost to the debtor other than filing and attorneys fees. A Chapter 13 on the other hand, requires the debtor to pay back all or a portion of their debt over a 3 to 5 year time frame. This change to the system was the addition of the means test which sets limits on the debtor’s income according to the set median income of the state they live in.
Also in 2005 The Bankruptcy Abuse Prevention and Consumer Protection Act also incorporated steps to help prevent further financial problems. Before filing bankruptcy, individuals must take a credit counseling course from a government approved organization in the district where the bankruptcy will be filed within 180 days. Further counseling sessions or money management classes are required to be completed prior to the debts being discharged at the end of the bankruptcy case. Some people argue that an individual filing for bankruptcy can’t afford such classes and that they will create further hardship on the debtor. However, if the debtor cannot afford to pay the course fees they can request a fee waiver from the organization and take the courses free of charge. Generally the pre-bankruptcy credit counseling and the post-bankruptcy debtor education financial management course run about $50 each. The courses are provided in person, on the phone, or online for convenience.
The pre-bankruptcy credit counseling course should include an evaluation of the debtor’s personal financial situation, information on alternatives to bankruptcy, and a personal budget plan. By checking the U.S. Trustee’s website you can be sure that you use a counseling organization that is approved by the judicial district that you are filing bankruptcy in. Once the credit counseling course is completed, the debtor will receive a copy of the course completion certificate which will need to be submitted to the court at the time of filing bankruptcy.
The post bankruptcy debtor education financial management course should also be completed through an approved provider. Most people use the same organization that they took the first pre-bankruptcy credit counseling course through. This course includes information on developing a budget, using credit wisely, money management, and other resources. The post-bankruptcy course typically takes a little longer than the pre-bankruptcy course-usually about 2 hours- and the debtor should also receive a copy of the course completion certificate. This certificate must be presented to the trustee prior to the bankruptcy discharge or the case will be dismissed without a discharge.
Again it is wise to research when choosing a credit counseling organization to make sure you use one that is an approved provider in your judicial district. If a debtor is unsure about any part of the process, they should consult with their bankruptcy attorney who can steer them in the right direction and will make sure the debtor completes everything that is required of them for a successful bankruptcy discharge.