What is credit counseling and why do I need it to file bankruptcy?

By: Cale Rogers

January 20, 2010

Back in 2005, Congress passed the "Bankruptcy Abuse Prevention Consumer Protection Act". Five years later, we know that this act neither prevented abuse nor protected consumers. It has made the cost of filing a bankruptcy case much higher. Fees have gone up. And it has added many steps, many of which seem to be needless and unhelpful, to the process. These steps cost time and money and add little.

For example, an individual simply cannot file a bankruptcy case without first taking a credit counseling and budget course. This course is available online, by telephone or in person. It is provided by not-for-profit organizations or agencies which are approved by the Office of the United States Trustee. These courses are provided in English as well as a number of foreign languages. The credit counseling agencies are located both locally and around the country too.

The credit counseling session could take between an hour and two hours. You'll have to be patient. You'll have to develop your budget and examine all your bills. Your credit counseling certificate must be filed with your case. It's good for 180 days from issuance. Both husband and wife need separate credit counseling certificates - so this is a family activity.

The logic behind this requirement was that some people would miraculously discover that they really did not have to file bankruptcy and could be diverted altogether from the bankruptcy "system" simply by budgeting better. It is questionable whether the process has served a significant purpose.

Credit counseling can cost $30 to $75 depending on the agency. Since price matters, we tend to refer our clients to the least expensive agency possible. The difference between the most expensive and the least expensive agency represents at least a full tank of gasoline.

"We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code."