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The Role of Credit Counseling in Financial Reorganization

When you file for Chapter 13 bankruptcy, you must commit to making payments on your plan for three to five years before receiving a discharge of debt. The credit counseling agency you select can help you determine an appropriate repayment plan.

You will need to consult an agency that is approved by the U.S. Trustee’s Office within 180 days before filing for bankruptcy. The website of the Office will provide you with a list of local approved agencies, or you can get a referral from your attorney. You may need to pay the credit counseling agency a “reasonable fee,” which may be up to $50. If you are below a certain income level, however, it will provide services at reduced rates or waive the fees altogether.

The agency will work with you, in the event that Chapter 13 bankruptcy is appropriate, to develop a debt repayment plan. After discussing your case with you and finding out your income and other details about your finances, the agency can prepare a budget based on your income and reasonable expenses. Often, it will confirm that you lack options other than bankruptcy for dealing with massive debt, but sometimes there are better solutions, such as learning to live within a stricter budget or negotiating individually with a small number of key creditors.

There are exceptions or modifications permitted with regard to the credit counseling requirement. For example, you can sometimes avoid going through this process before filing if you certify to the court that you had to file for bankruptcy immediately, such as if you needed to stop a foreclosure, and you couldn’t get a counseling appointment within five days of asking the agency. However, it is best to complete your credit counseling prior to filing your bankruptcy case. Most of the other exceptions are narrow, applying to groups such as active members of the military.

If the agency suggests a repayment plan with which you disagree, you do not need to approve it. However, you will still have to file it with your petition and other paperwork that the court will consider in weighing whether you are eligible for bankruptcy.

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