The bankruptcy general rule is that individuals must receive credit counseling from an approved agency within 180 days prior to filing bankruptcy. However, there are exceptions to this general rule. In a few limited circumstances credit counseling is not required. These circumstances are identified by the federal Bankruptcy Code as:
(1) incapacity where the person is so impaired by reason of mental illness or deficiency that the individual is incapable of making rational decisions;
(2) disability where the person is so physically impaired that the individual is unable, after reasonable effort, to participate in an in person, telephone, or Internet briefing session; or
(3) active military duty in a military combat.
The Bankruptcy Code also allows individuals to receive credit counseling after a bankruptcy case is filed under the following conditions:
(1) exigent circumstances exist that merit a waiver;
(2) the individual requested credit counseling services from an approved nonprofit budget and credit counseling agency, but was unable to obtain the services during the 5-day period before filing bankruptcy; and
(3) the request and explanation is satisfactory to the court.
Be advised that a pending foreclosure or lawsuit, procrastination, inability to pay for the counseling, incarceration, oversight, and “I don’t wanna do it” do not excuse the debtor’s failure to complete the pre-bankruptcy credit counseling. Bankruptcy courts are very unforgiving when credit counseling is not completed pre-bankruptcy and reluctant to approve waivers except in the most extreme circumstances.
Only agencies approved by the Department of Justice’s U.S. Trustee Program can issue pre-bankruptcy credit counseling certificates that are accepted by the bankruptcy court. Each agency is required to provide the service free of charge if you cannot afford to pay the credit counseling fee. Otherwise, the agency will charge a fee of around $50. The session will last approximately 60 to 90 minutes and includes an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and may include a personal budget plan. This counseling session may take place in person, on the phone, or online.
Once your credit counseling session is completed, a certificate is issued which must be filed with your bankruptcy case. Failure to complete the credit counseling or file the certificate will result in the dismissal of your bankruptcy case. Your bankruptcy attorney will recommend trusted credit counseling agencies. Discuss the credit counseling process with your attorney if you have questions. Do not overlook this mandatory credit counseling!