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The New Credit Counseling Requirements for Bankruptcy


You've probably heard by now: if you want to file bankruptcy, you have to go through "credit counseling.- This new requirement is part of the "Bankruptcy Abuse Prevention and Consumer Protection Act,- which became law in 2005. The idea is that those filing bankruptcy should get "educated- on how to manage their money. This, of course, carries with it a sweeping assumption: those who file bankruptcy do so because because of financial carelessness.

If you're like the vast majority of people who seek bankruptcy protection, you might find this insulting. Rightly so. In reality, 99% of people who file bankruptcy do so not because they're reckless spenders, but because they've suffered a life-changing event, like illness, death, job loss, or divorce. It is the reality of life's unexpected events, not bad decision making which has brought you to the point of filing bankruptcy.

The notion that bankruptcy filers are irresponsible is an idea the credit card companies sold to lawmakers over a ten-year, multi-million lobbying campaign to get a "bankruptcy reform act- on the books and make it more difficult for people to obtain bankruptcy protection. One of the big problems with this requirement is that it may deter those who need bankruptcy protection the most.

So, we've established that the counseling requirements are unfair and likely counter-productive in most cases. But, at least for now, credit counseling is still a requirement. The bottom line, however, is that the credit counseling requirement is easy to satisfy, won't take much of your time, and you might even learn something.

The pre-bankruptcy credit counseling normally lasts 60 to 90 minutes and can be conducted in person, over the phone, or online. It usually costs about $40, but you can ask for a waiver of the fee if you can't afford it. The program will discuss your financial situation, alternatives to bankruptcy, and a budget plan.

The post-filing debtor education course can last up to two hours. The cost is nominal, and can be waived if necessary. The course can also be conducted in person, over the phone, or online. You'll discuss developing a budget, managing money, and using credit wisely.

How do you find a credit counseling or debtor education organization in your area? The U.S. Trustee's Program oversees the administration of bankruptcy in all states, except North Carolina and Alabama, and it decides which organizations may conduct these courses. If you're in North Carolina or Alabama, court officials called "Bankruptcy Administrators- approve the eligible organizations. Your bankruptcy attorney can give you the information you need to find a reputable organization.

In North Carolina, the pre-bankruptcy credit counseling can be completed entirely over the internet. As a result, you can complete this requirement for less than $40. In North Carolina, the hands down best organization to use is Hummingbird, available "online", 24/7 for a cost of $34. This cost is per case, meaning that you pay $34 total, whether you file by yourself or with your spouse. Need to get your pre-bankruptcy counseling done? Hummingbird can be accessed at

But be careful. The counseling is only good for 6 months. If you wait longer than that to file, you will have to suffer through it again.

Lastly, beware. A cottage industry of illegitimate counseling organizations has cropped up. Before signing up with a particular organization, check with your attorney to make sure it has been approved and one that your attorney has had good experience with.

So those are the basics of the new counseling requirements. Don't buy into the false assumptions and perceptions the counseling may create. With a good attorney at your side, you'll be able to wade through this and the rest of the red tape the new laws have created, and make your fresh start.

In North Carolina, set up a FREE initial consultation with the Law Offices of John T. Orcutt, offering services in 28 different counties through 4 offices in Raleigh, Durham, Wilson and Fayetteville. During normal business hours, just call toll free to 1-888-234-4181. On nights and weekends, you can make your own appointment "online" by visiting our website at, available 24/7.

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