You can’t complete a personal bankruptcy and receive a discharge of debts without meeting the so-called debtor education requirement.
The “Credit Counseling” and “Debtor Education” Requirements
If you are an “individual” filing a bankruptcy case you can’t file a bankruptcy case without first undergoing “credit counseling.” (An “individual” is a person, not a business entity.) This requires you to get “an individual or group briefing (including… by telephone or on the Internet) that outlined the opportunities for available credit counseling and assisted such individual in preforming a related budget analysis.” (See Section 109(h) of the U.S. Bankruptcy Code.) It’s easier than this might make it sound. You must do this during the 180 days before filing, and you can’t file without doing so. (See our very last blog post about “credit counseling.”)
Then after filing bankruptcy, you must also meet the “debtor education” requirement. This means completing “an instructional course concerning personal financial management.” If you don’t do this, the case will end without you getting the discharge (legal write-off) of your debts. This applies to both Chapter 7 (Section 727(a)(11)) and Chapter 13 (1328(g)) of the Bankruptcy Code.
Today’s blog post is about this requirement.
What IS “Debtor Education”?
It is a class “designed to assist debtors in understanding personal financial management.” It’s usually done online, but can also happen over the phone, or even in person.
The “nonprofit budget and credit counseling agencies” providing the class must be approved by the United States Trustee, based on certain “applicable standards.” (See Section 111(c)(2) of the Bankruptcy Code.) At the heart of these standards an agency must:
provide adequate counseling with respect to a client’s credit problems that includes an analysis of such client’s current financial condition, factors that caused such financial condition, and how such client can develop a plan to respond to the problems without incurring negative amortization of debt
Make Sure to Do “Debtor Education” on Time
You get a certificate of completion after completing “debtor education,” your proof that you did so. Tell your bankruptcy lawyer so that he or she can file this certificate at court. This must be done before your case is completed. Otherwise, if a certificate of completion isn’t in your file when your bankruptcy case is ready to be closed the judge won’t sign the usual order discharging your debts. Then your bankruptcy case ends without a discharge of your debts.
This is not good. Most likely your main goal in filing bankruptcy is to discharge your debts and get a financial fresh start. You certainly don’t want to go through all that effort and expense without reaching this goal.
There’s a Likely Solution But It’s Expensive and Risky
If you’re reading this after your case has closed without you meeting the “debtor education” requirement, there’s likely a solution.
You could still take the “debtor education” class—after your case is closed. At that point, your lawyer may be able to persuade the judge to reopen your case, accept your certificate of completion, enter the discharge order, and then again close your case. This would get you the discharge of debts and solve the problem.
But it’s much better to avoid this situation. For 3 good reasons:
- These otherwise unnecessary steps would cost you hundreds of dollars more in “re-opening” filing fees and additional attorney fees.
- While your case is closed without a discharge, all your creditors could take action to collect on their debts.
- There’s some risk that a judge would not go along with this attempted solution.
So, take the “debtor education” course on time—preferably soon after filing your case—avoiding these unnecessary costs and risks.