Many people try debt counseling or credit counseling before deciding to declare bankruptcy. There are many types of debt counseling. Some debtors take classes to learn about finances, how to make a budget, how to set reasonable spending and savings goals, and how to use credit wisely. Some debt counseling focuses on creating a repayment plan, consolidating debt, or settling debt for less than the total amount you owe. Some debt counselors are licensed agencies that provide helpful advice and assistance in getting back on track financially; others are shady, fly-by-night operations that charge high fees, make false claims about their success rates, or otherwise leave debtors worse off than they were when they first sought help.
Regardless of what type of debt counseling you try, sometimes it simply doesn't work. Even if you use a reputable agency, your creditors might not be willing to settle your debts or accept a repayment plan you can afford. Perhaps you've suffered a financial setback, such as job loss, eviction, or unexpected medical bills, that has made it impossible to keep up with your payments. There are a number of reasons why you might end up having to file bankruptcy after all.
Once you decide to file for bankruptcy, you are required to complete a credit counseling course and a debtor education course. (For more information on these requirements, see Filing for Bankruptcy: Mandatory Counseling Requirements.) If you already went through some type of debt counseling before deciding to file for bankruptcy, you may wonder whether you have to go through counseling again to file.
Mandatory Counseling Requirements for Bankruptcy
Under 2005 changes to the bankruptcy code, those who wish to file bankruptcy must complete two counseling requirements:
- Within the six months before filing for bankruptcy, debtors must complete credit counseling with an agency approved by the U.S. Trustee's office. Credit counseling focuses on whether a debtor could get out of debt through an informal repayment plan rather than filing for bankruptcy. On completing this counseling, debtors will be given a certificate of completion, which they must file along with their other bankruptcy forms.
- Before receiving a bankruptcy discharge (the order that wipes out all eligible debts), a debtor must complete a debtor education course. This counseling focuses on personal finances, such as managing money, using credit, budgeting, and setting aside savings. Debtors must complete this counseling, then file a form with the bankruptcy court certifying that they have done so.
If You Already Tried Counseling
If you gave counseling a try before deciding that bankruptcy was the best option, you may be able to skip the first counseling requirement. However, you may avoid this requirement only if:
- You completed your counseling within six months before filing for bankruptcy.
- The counseling agency has been approved by the U.S. Trustee's office to provide pre-bankruptcy credit counseling. You can find out by checking the list of approved agencies at the U.S. Trustee's website; select "Credit Counseling & Debtor Education."
- The counseling you already had meets the legal requirements for pre-bankruptcy credit counseling. If the agency is approved by the U.S. Trustee's office, it should be able to tell you whether you've had the right kind of counseling. In a nutshell, the required counseling consists of evaluating your income, expenses, and debts, and determining whether you could get back on your financial feet through an informal repayment plan with your creditors.
- The agency issues you the required certificate of completion.
However, the second type of counseling -- debtor education -- must be completed after you file for bankruptcy. This means you can't skip the requirement, even if you already had debt counseling before you filed for bankruptcy.