Credit counseling and debtor education

• S. 256 § 106(a)
Under new § 109(h), individuals are ineligible for relief under any chapter of the Code unless, within 180 days of their bankruptcy filing, they received “an individual or group briefing” from a nonprofit budget and credit counseling agency approved by the United States trustee or bankruptcy administrator under standards set forth in a new § 111 and published by the clerk of court. Among these standards is a requirement that the agency provide its services without regard to the debtor’s ability to pay any fee. The required briefing, which may take place by telephone or on the Internet, must “outline” the opportunities for credit counseling and “assist . . . in performing a related budget analysis.” Exceptions are made (1) for districts in which adequate counseling services are determined by the U.S. trustee or bankruptcy administrator not to be available (a determination that must be reviewed annually); (2) for debtors who submit to the court a certification describing exigent circumstances requiring immediate bankruptcy filing and stating that the debtor had sought the required briefing at least five days prior to the bankruptcy filing without being able to obtain it (in which case the debtor is required to complete the counseling within 30 days after the bankruptcy filing); and (3) for debtors who are incapacitated, disabled, or on active military duty in a combat zone (with limiting definitions for incapacity and disability).

The debtor is required to file a certificate from the credit counseling agency describing the services provided, and file any debt repayment plan developed with the agency. By making individuals who have not received the defined briefing ineligible to be debtors, this change may have the effect of immunizing most individuals from involuntary bankruptcy cases.

However, because the required briefing is to be received prior to the “filing of the petition by [the] individual [debtor],” it may be argued that the eligibility requirement applies only in voluntarily filed cases.

• S. 256 § 105
The Executive Director of the Office for United States Trustees is required to develop a financial management training curriculum and materials to educate individual debtors “on how to better manage their finances.” The curriculum is to be tested in six judicial districts over an 18-month period, beginning no later than 270 days after enactment of S. 256. The Director is required to evaluate the effectiveness of the curriculum and materials, as well as other consumer education programs, and report to Congress no later than three months after the end of the test period as to the effectiveness and cost of the programs.

• S. 256 § 106(b) and (c) Even while the U.S. Trustees’ test program is being evaluated, debtors in both Chapter 7 and 13 will be required to complete “an instructional course concerning personal financial management” in order to assure their discharge, as long as the United States trustee or bankruptcy administrator determines
that there are adequate approved educational programs available and the debtor is not disabled or incapacitated (as defined in § 109(h)), or on active military duty in a combat zone. Unless one of these exceptions of the requirement applied, failure to
compete the instructional course would be a ground for denial of the Chapter 7 discharge under a new § 727(a)(11), and of the Chapter 13 d discharge under new § 1328(g). Telephone and Internet courses would be permissible “if effective.” As with credit counseling agencies, (1) the clerk of court must maintain a list of educational courses approved for each district by its United States trustee or bankruptcy administrator, under standards set out in new § 111, and (2) among the standards for approval is a requirement that the course be provided without regard to the debtor’s ability to pay any fee charged for the course.