Commonly Asked Questions about the Financial Counseling and Education Provisions of the New Bankruptcy Law
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect on October 17, 2005. Here are some of the most commonly asked questions about the financial counseling and education provisions of the new law and their impact on consumers:
A: For the first time, financial counseling and education will be mandated by the Bankruptcy Code and will benefit consumers facing serious economic problems. Prior to filing for bankruptcy, individuals will be required to receive a briefing from an approved nonprofit budget and credit counseling agency. Prior to completing the bankruptcy process and receiving a discharge, individuals will be required to complete a course on personal financial management.
A: For most individuals, whether they should file for bankruptcy is one of the most serious financial decisions they can make. Consequently, that decision should be made only after knowing what the bankruptcy process entails, the consequences of filing for bankruptcy, and the available alternatives to filing for bankruptcy. The pre-filing counseling session will enable consumers to fully understand the potential advantages, disadvantages of, and alternatives to, declaring bankruptcy before taking action. Helping consumers to fully understand the implications of bankruptcy and the possible alternatives will enable them to make an informed decision about whether bankruptcy is the best option for their specific financial circumstances.
A: On and after October 17, all individuals filing for bankruptcy under Chapter 7 or Chapter 13, will be required to participate in an pre-bankruptcy filing counseling session with an approved nonprofit budget and credit counseling agency within six months of filing. CCCS-OC is approved by the Executive Office for U.S. Trustees (EOUST), and can issue certificates in compliance with the Bankruptcy Code. Approval does not endorse or assure the quality of an agency’s services.
- People seeking pre-filing counseling with CCCS-OC can expect:
- Estimated length: A counseling session of approximately 90 minutes.
- Content: The session will include an overview of the bankruptcy process; a discussion of possible alternatives to bankruptcy, including their advantages and disadvantages; and a personalized budget analysis. The session also will include a discussion of the circumstances that led the consumer into financial difficulty.
- Format: Counseling can be face-to-face, over the phone or via Internet.
- Certificate: Consumers will receive a certificate indicating that they completed the counseling session. Should they decide to file for bankruptcy, they will have to include the certificate in the filing with their bankruptcy petition.
A: Before a bankruptcy is finalized and debts can be discharged, consumers will be required to complete a pre-discharge financial education course from an EOUST (or Bankruptcy Administrator)-approved agency.
The following is an overview of what to expect from the pre-discharge education:
- Estimated course length: 2 hours
- Content: Our program “Money In Motion” addresses financial literacy issues that will arm individuals with the tools to prevent future financial problems. Among key topics: rebuilding finances after bankruptcy, developing and following a budget, understanding and using credit, “predatory lending,” and identity theft.
- Format: Face-to-face or via Internet.
- Certificate of completion - Consumers will be given a certificate verifying completion of the course, and will have to file that certificate with the Bankruptcy Court in order to have their debts discharged.