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New Bankruptcy Law Requires Credit Counseling Before Filing
If you are considering filing for bankruptcy, you should know about one
major change to the bankruptcy law: Beginning October 17, 2005, you must get
credit counseling from a government approved organization within six months
before you file for bankruptcy protection. You can find a state-by-state
list of government-approved credit counseling organizations at
www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the
organization within the U.S. Department of Justice that administers
bankruptcy cases.
As a result of Hurricane Katrina, the U.S. Trustee Program has temporarily
waived the credit counseling requirement for consumers who are filing for
bankruptcy in Louisiana and the Southern District of Mississippi. For more
information, visit www.usdoj.gov/ust.
Credit Counseling Requirements
Generally, credit counseling organizations advise consumers on managing
money and debts and developing a budget; most usually offer free educational
materials and workshops. The credit counseling required by the new
bankruptcy law can take place in person, on the phone, or online. You can
expect your counseling session to last about 90 minutes and to include an
analysis of your budget. The credit counseling organization can charge you a
reasonable fee for its services. Credit counseling organizations on the U.S.
Trustee's list must waive the fee for anyone who can't afford to pay. Fees
may be in the $50 range, but could be higher depending on where you live,
the types of services you receive, and the administrative costs of the
credit counseling organization. Once you have completed the required
counseling, you must obtain a certificate as proof. Check the U.S. Trustee's
website to be sure that you receive the correct certificate for the
bankruptcy court where you will be filing for bankruptcy. Some credit
counseling organizations may charge extra for the certificate.
Sometimes, credit counseling organizations recommend and negotiate a debt
management plan (DMP) for their clients. In a DMP, you deposit money each
month with the credit counseling organization, which, in turn, uses your
deposits to pay your credit card bills, student loans, medical bills, or
other unsecured debts according to a payment schedule they've worked out
with you and your creditors. Sometimes, creditors agree to lower interest
rates or waive certain fees if you are repaying your debts through a DMP. A
DMP is not required for consumers who are filing for bankruptcy. If you do
go the DMP route, you will need to provide a copy of the plan to the
bankruptcy court when you file for bankruptcy.
Important Questions to Ask When Choosing a Credit Counselor
As with any important decision about your finances, it's wise to take an
active role in choosing a credit counseling organization. Once you have the
list of organizations approved by the U.S. Trustee Program, call several of
them to gather information before you make your selection. Some key
questions to ask are:
What services do you offer?
Will you help me develop a plan for avoiding problems in the future?
What are your fees?
What if I can't afford to pay your fees?
What are the qualifications of your counselors? Are they accredited or
certified by an outside organization? What training do they receive?
What do you do to keep information about me (including my address, phone
number, and financial information) confidential and secure?
How are your employees paid? Are they paid more if I sign up for certain
services, if I pay a fee, or make a contribution to your organization?
Suppose I want only the credit counseling services and budget analysis that
are required before I can file for bankruptcy relief. How much will these
services cost? What services will your company provide? How will I know that
I have the correct certificate I need to file for bankruptcy? Does the
certificate cost extra? If so, how much?
For More Information
To learn about other changes in the bankruptcy law and how they affect
consumers who want to file for bankruptcy beginning October 17, 2005, visit
www.usdoj.gov/ust/bapcpa/index.htm. For more information about credit issues
and choosing a credit counselor, visit www.ftc.gov/credit.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair
business practices in the marketplace and to provide information to help
consumers spot, stop, and avoid them. To file a complaint or to get free
information on consumer issues, visit www.ftc.gov or call toll-free,
1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters
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