Prior to filing bankruptcy, a debtor is required to take a credit briefing before the petition is filed, and attend a financial management course before the debtor is entitled to receive a discharge. The requirement is only for consumer debtors if the bankruptcy is filed under Chapters 7 or 13. If the debts are primarily business debts, then there is no requirement for the Credit Counseling before filing the bankruptcy. The credit counseling must be taken within 180 days of the filing of the bankruptcy case.
Exceptions to Pre Filing Credit Counseling Requirement
There are very limited exceptions to the credit counseling requirement. One exception is where there are exigent circumstances such that the debtor had requested but was unable to obtain credit counseling during a five-day period beginning on the date of the debtor's request . If the debtor meets these requirements, the court must also find that the circumstances and the explanation are satisfactory to justify the exigent circumstances' exception. The counseling still has to be taken within 30 days after the filing if the debtor can prove exigent circumstances and only one 15 day extension beyond the initial 30 days is allowed.
In addition, if a debtor is prevented from taking the course due to "incapacity, disability, or active military duty in a military combat zone," then there also may be an exception to the pre filing credit counseling. Finally, a person may be excepted from the credit counseling where the debtor lives in a residence in a district for which the United States Trustee has determined that credit counseling is not reasonably available.
Mandatory Financial Management Course Prior to Bankruptcy Discharge
There is also a mandatory financial management course prior to the debtor being able to obtain the discharge or wipe out the debt. If a debtor fails to attend this financial management course, the debtor is not eligible to receive a discharge and the case is closed out with no discharge. This effectively means that the debtor went through the bankruptcy process for no reason. Remember, the whole goal of any bankruptcy is for a person to obtain a discharge order wiping out all debt. Thus, it is critical to take the financial management course in order to receive the discharge.
The content, length, and provider of this course are approved by the United States Trustee's Office. The clerk of the Bankruptcy Court maintains a list of qualified agencies that can give the course.
The most prudent way to handle is to instruct the debtor to schedule and complete the required counseling a few weeks before the date that creditors have to object to the discharge. By handling it this way, the discharge order should come through right away once the time for the creditors and trustee to object has passed. Our office sends multiple notifications to clients with instructions at different points in the case to ensure the client takes the course at the appropriate strategic time.
The course is not that difficult, but the debtor must expend the effort and go through the counseling. Presently, in New Jersey the courses can be taken on line and on the phone.
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