Posted by Andy Toth-Fejel on November 20, 2017 under Bankruptcy Blog | 
Since the 2005 amendments to the Bankruptcy Code, you can’t file an individual bankruptcy case (Chapter 7, 13 or individual Chapter 11) without first taking the so-called “credit counseling.” course from an approved nonprofit budget and credit counseling agency.
What’s Actually Required?
Not much. It’s actually a simple procedure you do on the internet, or by phone if you prefer. You simply provide some information about your debts, income, and expenses. Then are almost always told that your income is not sufficient to pay for your expenses.
180 Days before Filing
The “counseling” session must take place “during the 180-day period” before filing bankruptcy. So be sure that you’re going to be filing bankruptcy within that length of time after you do it. Otherwise, if your bankruptcy filing is delayed beyond the 180 days, you will have to take the course again.
Usually people run into the opposite problem, putting it off too long. Even though you can usually get the requirement out of the way within 24-48 hours, there are situations where debtors come to an attorney to file on the day of a foreclosure sale. In that case, the debtor can be SOL.
Reason for this Requirement
The supposed reason for this requirement was to encourage people to consider options other than bankruptcy.
The United States Government Accountability Office has issued a report which questions that viability of that rationale:
“The counseling was intended to help consumers make informed choices about bankruptcy and its alternatives. Yet… by the time most clients receive the counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy. As a result, the requirement may often serve more as an administrative obstacle than as a timely presentation of meaningful options.”
My opinion is that one of unspoken policies for the 2005 amendments was to discourage bankruptcy filings by making them more time consuming and expensive. The credit counseling requirement (and the financial management course requirements, see below) are just additional hoops through which a debtor is forced to jump.
Costs/Where to Go ?
When the requirement first came out, it cost about $75-100 for the credit counseling course. Now, the cost is down to $20-35 on the average. You can find a list of approved providers on the US Trustee’s website, but it is easier to get a recommendation from your lawyer.
You also have to take a financial management course after the filing. Same cost. No course, no discharge.
Posted by on May 28, 2016 under Bankruptcy Blog |
From the mid-1990’s to 2005, the creditor lobby worked hard to change the Bankruptcy Code. In their eyes, too many people, who could afford to pay part of their debts, were filing under Chapter 7 and walking away scot free. They wanted people to be forced into Chapter 13, where you have to make monthly payments to a Trustee for 36-60 months if the prospective debtor had the means to pay. Finally, in 2005, Congress changed the law which is called “Bankruptcy Abuse Prevention and Consumer Protection ” Act (BAPCPA). 11 years later, there is still confusion among the public about whether you can still file for Chapter 7, or you must file under Chapter 13. To qualify for Chapter 7, you have to pass the Means Test, the bankruptcy court version of what the IRS uses to determine what you can pay on back taxes. The Means Test is not straightforward, and some issues concerning its application are not clear even after a decade of BAPCPA. However, the bottom line is that you can still file under Chapter 7.
1. Bad Publicity
The creditor lobby, the media and sometimes even the bankruptcy system have all had a hand in making many people think that qualifying for “straight bankruptcy” is hard. While it is true that for the first couple of years, Chapter 13 filings were up, after debtor attorneys started to understand the new system, the vast majority of filings in New Jersey are still under Chapter 7.
2. A Confusing Statute
Upfront, BAPCPA is loaded with abuse prevention but I don’t see much consumer protection. The law is poorly written, confusing and sometimes one section contradicts another section. Moreover, because of these statutory contradictions and ambiguities, Courts, all the way up to the Supreme Court, have been scratching their heads trying to make sense of it. If the judges are having trouble with the complexities of the new law, then it is no surprise that ordinary people are confused.
3. Most Can “Skip” the “Means Test”
Parts of the “means test”–the major mechanism now for qualifying under Chapter 7—are mind-numbingly confusing, but many people can avoid all that simply by virtue of their income. Without getting into the calculations here, basically if your “income” (as specially defined for this purpose) before filing was no more than the published median income amount for your state and size of family, then you qualify for Chapter 7 without needing to go through any more of the “means test.”
Also, certain kinds of folks can skip the “means test” no matter the amount of their income, specifically present or recent business owners who have more business debt than consumer debt.
4. Passing the Means Test turned out to be easier than we thought
Even if you are a consumer debtor whose “income” IS higher than the applicable median income amount, through some good lawyering, which is creative but perfectly legitimate, you may well be able to lower your “income” or increase the reporting of your expenses to bring your overall under the applicable median amount. If so, you qualify for Chapter 7.
5. Chapter 13 is Sometimes the Better Option
The purpose of the “means test” is to make people who have the “means” pay back some of their debts through a Chapter 13 case. In the relatively few times that a person does not qualify under Chapter 7 and so has to do a Chapter 13 case, in almost all cases, the amount that must be paid in the Chapter 13 case to the creditors is much less than the total debt, making it not such a bad deal. Also, often a person who “just wants to file Chapter 7 and get it over with” learns that Chapter 13 comes with surprising advantages, which are more helpful to the debtor in the long run.
