Credit Counseling Law & Legal Definition

The new bankruptcy law provides that before filing for bankruptcy a debtor must undergo credit counseling with an approved provider11 USCS § 521(b) .

In addition to the requirements under subsection (a), a debtor who is an individual shall file with the court-- (1) a certificate from the approved nonprofit budget and credit counseling agency that provided the debtor services under section 109(h) [11 USCS § 109(h)] describing the services provided to the debtor; and (2) a copy of the debt repayment plan, if any, developed under section 109(h) [11 USCS § 109(h)] through the approved nonprofit budget and credit counseling agency.

Credit Counseling explores the possibility of repaying debts outside of bankruptcy. The counseling educates the debtor about credit, budgeting, and financial management. As an alternative to bankruptcy, credit advisory service is offered to persons with excessive debts. Debt counselors affiliated with the National Foundation for Consumer Credit charge only a nominal monthly fee for helping consumers work their way out of debt. Consumers are budgeted a portion of take-home income to pay off current obligations and voluntarily curb their use of credit until debts are repaid.

In General, Credit counseling refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to these requirements for certain categories of debtors. Moreover, in exigent circumstances these requirements are not necessary to be complied with. The requirements are not mandatory if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.