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Credit counseling requirements and Chapter 7

When it comes to filing for Chapter 7 bankruptcy, it often seems as if people can be divided into two camps: those who believe that it is a relatively easy and painless process that everyone should consider and those who believe that it is an incredibly difficult and onerous ordeal to be avoided at all costs.

The reality, of course, is somewhere in the middle, as filing for Chapter 7 bankruptcy is a relatively straightforward and worthwhile option for many financially distressed individuals that nevertheless requires some sacrifice and a commitment to the process.

By way of illustration, consider the credit counseling requirement that everyone who files for Chapter 7 (or Chapter 13) is required to complete in the 180-day period preceding the filing of their bankruptcy petition. While this is by no means a simple requirement to fulfill, it's also by no means impossible.

In general, the law dictates that while individuals must complete their counseling from a nonprofit budget and credit counseling agency approved by the U.S. Trustee Program, it also states that this can be completed in-person, online or even over the telephone in a variety of languages via a variety of qualifying entities.

Furthermore, while the law is strict regarding completion of credit counseling before filing the petition, it does allow people to ask the bankruptcy court for an extension should "exigent circumstances" arise.

In addition, it also outlines three exceptions to the credit counseling requirement:

  • The person is incapacitated to such a degree by reason of mental illness/deficiency that they are unable to make rational decisions.
  • The person is physically impaired to such a degree that they are unable, despite reasonable efforts, to make participate in credit counseling sessions in any forum.
  • The person is an active duty member of the military located in a combat zone. 

What all of this serves to underscore is that anyone considering the fresh start offered by Chapter 7 bankruptcy should strongly consider speaking with an experienced legal professional to learn more about the process as it may be quite different than what they envision.

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