Bankruptcy

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

By David Leibowitz, Illinois and Wisconsin Bankruptcy

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.

But 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 on line, 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 thinking 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. This hasn’t turned out to be the fact. In my experience, over the past five years, not one person who consulted me about filing a bankruptcy case decided that he or she didn’t have to file bankruptcy as a result of credit counseling.

Credit counseling can cost anyplace from $30 to $75 depending on the agency. Since price matters, we tend to direct 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.

Credit counseling generates a fair amount of money – seems to be something in excess of $50 million per year. This isn’t a big deal for our US economy but it is a lot of money to take from poor people facing bankruptcy for not much perceivable benefit.

Full post as published by Bankruptcy Law Network on February 27, 2010 (boomark / email).