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3. Credit counseling an debtor education
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 non-profit 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. Typically this will involve the interaction of the debtor with a 501 (c) (3) tax exempt credit counseling agency. 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 circumstances requiring immediate bankruptcy filing and stating that the debtor had sought the required briefing at least five (5) 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 payment plan developed with the agency. Recently the IRS has been cracking down on credit counseling organizations and revoking their 501(c)(3) status. Based on past abuses many credit counseling firms do not provide appropriate credit educational materials and have been cited for making improper referral fees and in accepting "fair share" payments from the underlying creditors for whom payment plans are arranged. The loss of many of these firms at the exact time that the new law is to be implemented may create a substantial backlog of cases waiting to meet these requirements. This may result in an unintentional pool of assets being tied up in the process.
The Office for United States Trustees is required to develop a financial management and educational training curriculum and materials to educate individual debtors "on how to better manage their finances." The curriculum is to be tested in six (6) 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 the Congress no later than three (3) months after the end of the test period as to the effectiveness and cost of the programs.
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. Non-excepted Chapter 7 debtors would be subject to denial of discharge under a new § 727(a) (11) for failure to complete an approved program, and non-excepted Chapter 13 debtors would be denied a discharged under new § 1328(g) unless they completed such program. This adds a layer of administrative complexity to the process whereby creditors are sure to be waiting to take advantage of the dilatory debtor. Telephone and Internet 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 approved without regard to the debtor's ability to pay any fee charged for the course. In several jurisdictions various attorney-run programs or cooperatives have sprung up in an attempt to meet this criteria.
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