In our previous blog article, we discussed how amendments to federal laws in 2005 added new requirements for consumers to qualify for Chapter and Chapter bankruptcy. We addressed the requirement for bankruptcy filers to participate in two credit counseling sessions – one before filing a bankruptcy petition and one prior to a debt discharge. In this blog, we will examine the law regarding the “Second Session” of credit counseling, referred to as a debtor education course, and whether this session provides benefits for bankruptcy filers or merely serves as another meaningless hurdle to conclude a case.
The Debtor Education Course Requirement Under the Law
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) went into effect in 2005, and the Act substantially amended consumer bankruptcy laws. While Congress claimed the changes aimed to protect consumers, in fact, they created new obstacles for consumers to benefit from the bankruptcy process. While legislators said the changes would curb bankruptcy abuse, it seemed like they actually created more administrative hurdles for consumers while still allowing businesses the same access to bankruptcy cases.
Regardless of whether you agree with BAPCPA’s amendments to bankruptcy laws and procedures, the law does apply to all consumer bankruptcy cases in the United States. One step in the process added in 2005 was that consumers now must undergo two credit counseling sessions – one before filing for bankruptcy and the other before they can receive a discharge of their remaining debts. The second debtor education course is meant to educate debtors on how to budget and manage household finances to hopefully prevent the need for another bankruptcy down the road.
Once you complete the debtor education course, you will receive a certificate of completion, which you must file with Official Bankruptcy Form 423. In a Chapter 7 case, you must complete the course and file the certificate within 45 days of your 341 meeting of creditors. In a Chapter 13 case, you must file the certificate on or before the date of the last payment of your repayment plan.
Not completing the debtor education course on time may not seem like a major issue. However, if you fail to file your certificate on time, the law allows the bankruptcy court to dismiss either a Chapter or Chapter case. A dismissal can create many problems, including:
The court will lift the automatic stay, which will allow creditors to reinitiate debt collection efforts, including wage garnishments or lawsuits
You will owe more on your debts than you did prior to filing for bankruptcy
In a Chapter 13 case, you will have made payments for three to five years and still have remaining debts due to no discharge
If you want to reopen your bankruptcy case, you will need to pay the filing fee again, as well as the fees for additional credit counseling courses
You never want to risk having the court dismiss your bankruptcy case, so you should always complete your debtor education course with plenty of time to spare.
Debtor Education: Beneficial or Burdensome?
The first credit counseling session teaches potential filers about debt relief alternatives to bankruptcy. At this point, many consumers have already set their minds on bankruptcy or may have few other realistic options, so they tend to simply go through the motion instead of taking away valuable information from the session. On the other hand, the debtor education course focuses on teaching financial skills a debtor can employ in the future. Final rule 28 C.F.R. §§ 58.25 – 58.36 sets our required topics a course must cover, which include:
Ways to use credit wisely and avoid abuse
Budgeting skills
Other techniques for responsible money management
- In many situations, consumers seek relief from bankruptcy because they mismanaged their finances and this course may provide some valuable information. In addition, consumers can take this course early in the Chapter 13 process, so it may possibly assist them with budgeting to ensure they successfully complete their payment plan.
- While the course may provide some useful information for some people, there are several reasons why many debtors find little value in the course. Such reasons may include:
- The course is brief and not personalized, so some debtors may not know how to apply the lessons to their own financial situations
- Some bankruptcy filers know how to manage money properly, and they only need to file bankruptcy due to medical bills, personal injury judgments, or other debts not related to credit misuse or money mismanagement
While the S. Trustee Department must approve all debtor educators, the new requirement led many people to obtain approval to make profits and not necessarily because they are qualified or dedicated to providing financial education
Two years after the enactment of BAPCPA, the National Consumer Law Center conducted a study regarding the effectiveness of credit counseling requirements in consumer bankruptcy. At the time, the study concluded there were “new burdens but few benefits.” In the years since the study, not many changes occurred in the debtor education process, which may indicate there might be a better way to avoid consumer bankruptcy abuse and prevent future bankruptcies than by requiring debtors to pay for a course with little impact.
Consult with a Highly Experienced Long Island Bankruptcy Attorney
Whether filers find the second credit counseling session to be educational or a burden, participation is an important requirement to obtain a discharge of your debts under Chapter 7 or Chapter 13 bankruptcy. If you go through the bankruptcy process and then unknowingly fail to complete this counseling session, you could risk the court dismissing your case and could face a significantly worse financial situation than you had before.
We cannot overstate the importance of having the guidance of an experienced bankruptcy lawyer. At the Law Office of Ronald D. Weiss, we advise clients of their debt relief options and handle every step of the bankruptcy process, ensuring each client receives the best possible outcome. Please call (631) 271-3737 or contact us online for more information about how we may help you.