Thursday, July 21, 2005

Credit Counseling

Credit Counseling, Part 1

The requirement for credit counseling prior to filing bankruptcy has been widely published and discussed as a major reform that is to reduce the number of bankruptcy cases filed. §109(h)(1) of the amended Code titled “Who may be a debtor” introduces this new requirement. (for a redlined copy of the amended code I have been using one from Skadden Arps, a .pdf is available at ) No more than 180 days prior to the filing of a case a debtor must obtain credit counseling from an approved organization, described in §111(a). This counseling may take to form of one-on-one counseling, group counseling, telephone or internet based counseling. On its face this seems to be a fairly innocuous requirement, who could argue that it is too much to ask that people try to solve their problems without filing bankruptcy? In the practice of consumer bankruptcy here in SC this will be an issue the last Friday of every month, as foreclosure sales are the first Monday of every month. What do you do when a debtor comes into your office at 5:00 on “Black Friday” and wants to save their house? Well, section 109(h)(3)(A)(i) does allow that under “exigent circumstances” a debtor may receive a waiver of this requirement(counseling still must happen within 30 days of filing a case). I would not expect there to many waivers granted based on debtors waiting to the last minute to file, this would seem to be more like inexcusable neglect than “exigent circumstances”. Waiver may also be granted if counseling is not available within 5 days of the request for counseling. What I would expect to come of this situation is that some enterprising non-profit will create and get approved a web based counseling system which will allows debtor attorney in this situation to bring clients in day or night, sit them at a computer and have them do what’s needed to comply. A copy of any repayment plan devised by a credit counselor must be submitted to the Court as well(section 521(b)(2)). This requirement, like many in the reformed Code, directs debtor attorney to submit documents to the Court, but gives no indication of what effect it will have.

The waiver under section 109(h)(3)(A) requires all three prongs, exigent circumstances, unavailable counseling (within 5 days), and court approval.

Definitions, Disclosures and Double Talk

The new reform act has changed the language of bankruptcy, or at least is attempting to. A person who seeks an attorney to file a bankruptcy is now an "assisted person" (sec 101(3)), unless that person has more than $150,000 in "non-exempt" assets. Attorney's now provide "bankruptcy assistance" (101(4a)). Income is not what one would think it is either, "current monthly income as defined in section 101(10a) is the average monthly income from all sources for the six months prior to the filing of a case under bankruptcy. This calculation could have a major impact on the timing of filing cases if an assisted person has recently lost a good paying job and otherwise would have qualified for a chapter 7. Assisted persons no longer seek help from law firms, now they will go to "debt relief agencies" (101(12A)). This is terrible, this makes law firms sound like some government agency, or at the least makes the difference between a credit counseling or debt assistance company even less clear. To add to the confusion, any organization that helps people file bankruptcy state in any advertisement "We are a debt relief agency..." 528(a)(4) Section 527 has a lengthy section of required disclosures that must be present to potential clients which, for one must include that it is not necessary to hire an attorney to file for relief. Great, I'm sure that every trustee who has seen this is cringing. What could be better than changing the code into an even more archane and complicated system, and then encouraging the public to file cases without assistance.
In sum, there are dozens of "magic" words, phrases, and notices that must be made to potential clients. Many of our clients are not the most sophisticated, and some are barely litterate, yet we now have to provide them with even more information that they will either not read or not understand. It is painfully obvious that thoes who wrote this law have never spent a day in a small consumer bankruptcy office to see what it's all about. We aren't representing Jeffery Skilling, we are representing good people to whom bad things have happened. Most of these people are not sophisticated enough to read and understand a tax form, or a truth in lending form but we will now make them read similarly convoluted forms in order to comply.


Hello and welcome. My intent in creating this blog was to put out information on the Bankruptcy Reform Act and the practice on bankruptcy law (debtor side) in general in South Carolina. In addition I expect to publish comments on state and federal legal and political issues. I'm not sure how this is going to evolve (input from readers would be helpful).

A little about myself:
I am originally from Burbank, California. I spent four years after graduating from high school on active duty with the US Army's 82nd Airborne and 7th ID Light. During my time with these units I took part in peacekeeping duty in Egypt, fighting fires in Yosemite, deployments to Korea, Honduras and the invasion of Panama. I then returned, partially, to civilian life to attend college. First at Glendale Community College, during which I was called up to quell the LA Riots in 1992. Then on to the University of Southern California where I received my BA in International Relations. I returned to active duty with the 10th Mountian Division for three years. After a medical discharge I relocated to the DC area to attend law school at the Catholic University of America, Columbus School of Law. I focused on tax law(strange because I always hated math). I am now in the Upstate South Carolina area and working with The Cooper Law Firm primarily in the area of consumer bankruptcy, chapter 7 and 13, and some work on small chapter 11 cases.

I hope to post weekly on topics of interest to myself, and hopfully others.