What is credit counseling for bankruptcy? In 2005, Congress passed and President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a bankruptcy reform law. One of the requirements BAPCPA imposes on a bankruptcy debtor is to receive credit counseling from an approved credit counseling agency before the bankruptcy filing.
Credit Counseling and Bankruptcy
Specifically, BAPCPA requires that 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, but it must “[outline] the opportunities for available credit counseling and [assist] such individuals 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 once the bankruptcy proceeding has begun.
What qualifies as an approved credit counseling agency?
Either the U.S. trustee or bankruptcy administrator in each state maintains a list of approved credit counseling agencies for use in the state’s courts. The list of approved agencies is also available on the U.S. courts website. Approval can be revoked at any time, and 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
- Maintain “quality, effectiveness and financial security of the services it provides”
Exceptions To The Credit Counseling Requirement
There are some exceptions to the counseling requirement for certain debtors in particular situations. First, the court may waive the counseling requirement if there are “exigent circumstances,” and the debtor made a request for counseling that an agency was unable to provide within five days.
Second, a debtor is excused from the requirement if incapacitated by mental illness or deficiency, if physically impaired such that they are unable to participate with reasonable effort, or if 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.
Consumers considering bankruptcy as a future option should investigate the credit counseling requirement well before the anticipated bankruptcy filing. A bankruptcy lawyer experienced in consumer credit law at Minnillo Law Group Co., LPA in Cincinnati can help debtors determine whether bankruptcy is the appropriate course of action for them, and can advise them about the credit counseling requirements.
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