“Credit counseling” has to be done shortly before filing bankruptcy, “debtor education” shortly after. The latter may even be worthwhile.
This is the sentence we’re focusing on today:
“Debtor education” is not only a simple task but one that may even be helpful, one you must take care of on time or else you will not discharge your debts.
What is the So-Called “Debtor Education”?
During the 180 days BEFORE filing bankruptcy you must go through an easy “credit counseling” “briefing” in order to be able to file your case. (This “credit counseling” requirement was the topic of our last blog post.) Then AFTER filing you must also complete “an instructional course concerning personal financial management” before you can get a discharge (legal write-off) of your debts. This second step is referred to as the “debtor education” requirement.
It’s Not Difficult and Is Potentially Useful
“Debtor Education” consists of a 90-minute or so class “designed to assist debtors in understanding personal financial management,” such as budgeting skills and the appropriate use of credit. Assuming you have access to the internet, it’s most conveniently done online. But it can also be done over the phone or in person. When spouses file a bankruptcy together both have to take the class.
Whereas the pre-bankruptcy “credit counseling” session is almost always no more than a bureaucratic hurdle and a waste of time, that’s often not true of “debtor education.” Almost everybody can benefit from better “personal financial management” (including most people not filing bankruptcy!). Go into the session with an open mind and you may well get some information worth applying into the future.
Getting the Timing Right
Because “debtor education” has to be done after your bankruptcy case is filed, it’s all too easy to neglect this requirement. You can’t file a consumer bankruptcy case without doing the earlier “credit counseling” course, so it’s impossible to not do that one. But once your case is filed and underway and you focus on other aspects of your case and your life it’s understandable to pay less attention. But if you don’t complete “debtor education” in time your bankruptcy case will end without you receiving a discharge (write-off) of your debts.
Whether you’re filing a Chapter 7 case or a Chapter 13 one, a discharge of your debts is one of your main goals. In a Chapter 7 case the discharge happens very quickly—usually only about 3 months after your case is filed—so you need to do the “debtor education” before then. In a Chapter 13 case you have much longer before the discharge—usually 3 to 5 years—but all the easier to forget about the “debtor education” requirement. You certainly don’t want to go through all the effort and expense of filing bankruptcy and find out at the end that your debts weren’t discharged because didn’t take care of this one simple task.
Important: when you do the “debtor education,” you receive a certificate of completion which must be filed at the court. Coordinate this with your attorney, because not only must you take the class but this certificate must then be filed at the court on time.
The Consequence of Not Doing This on Time
If your bankruptcy case is finished and the court closes the case before receiving the certificate of completion of the “debtor education” requirement, the judge will not sign the usual order discharging your debts. The case will close without that being done. In a Chapter 7 case you will have lost out on what would have been likely the biggest benefit of filing the case. In a Chapter 13 case usually a portion of the debts are paid, but often only a small portion, and sometimes none, making the discharge of the remaining debts also extremely important.
If your case gets closed without a discharge, you may still be able to complete the “debtor education” class and then have your attorney persuade the bankruptcy judge to reopen your case for the purpose of entering the discharge order. But there are three reasons you should avoid getting into this situation:
1) This process would cost several hundreds of dollars more in “re-opening” court filing fees and attorney fees.
2) Your creditors could legally collect on their debts from the time your case is closed until the case gets reopened and your debts are discharged.
3) The bankruptcy judge may or may not decide to reopen your case, so there’s some risk that you would still remain liable on your debts.
Clearly, you’ve got to take the “debtor education” requirement seriously and complete it on time to avoid these consequences.