Pre-Discharge Bankruptcy Education

About Pre-Discharge Education

Bankruptcy petitioners all have one goal: getting out of debt as quickly as possible. That objective is reached through discharge, a court order that releases a debtor from obligations to repay specific unsecured debts. It prevents creditors or collection agencies from collecting debts through legal action or communication, such as phone calls, letters or personal contact.

Though the goal is clear, the path to a discharge is often complex and it behooves petitioners to understand the bankruptcy process and its potential pitfalls.

Discharged debts are no longer collectible. Bankruptcy judges decide how much a petitioner can afford to pay creditors, through either a payment plan or a discharge.  A discharge order often requires that the petitioners sell personal assets to partially repay the creditors, but when the court-mandated payments are made, the debts are permanently gone.

Though bankruptcy discharges clear away debt, their terms are strict and require that petitioners follow court orders. Usually a judge appoints a trustee to make sure the order is followed. If you don’t cooperate with the bankruptcy trustee in liquidating personal assets, or you committed fraud in obtaining the discharge, the trustee may ask the court to revoke the order.

Debtor Education Required Courses

Before having your debts discharged, you must embark on a long and sometimes tedious process that includes two financial education courses.

The first is called the pre-filing credit counseling course, which you must take before you file for bankruptcy.

The second is the pre-discharge bankruptcy education, commonly called “Debtor Education.”

Debtor education focusing on budgeting and managing money after bankruptcy. The idea is to set financial goals and learn how to cut your expenses.

The debtor education course is taken after you file for bankruptcy but before your case is discharged. You must enroll in a course offered by an agency that is approved by the Office of the U.S. Bankruptcy Trustee. If you can’t afford the course’s cost, you will be allowed to pay what you can afford on a sliding scale. Course costs vary, but the Executive Office for U.S. Trustees (EOUST) says that courses costing less than $50 are reasonable. Any bankruptcy education provider that wants to charge more than that needs approval from EOUST.

You can take the course in person, by phone or on the internet and the instructor will provide all required materials. Online and phone courses require satisfactory completion of a test.

If you are married and both you and your spouse are going through bankruptcy together, you can take the pre-discharge course together or separately.

Bankruptcy courts require successful completion of both courses before your debts can be discharged.

Requirements for Pre-Discharge Bankruptcy Education

The material presented in pre-discharge bankruptcy education classes is focused on teaching the consumer how to create a budget (and live with it!), plus rebuilding credit after bankruptcy so that it becomes a useful part of your financial future. It’s important that you take the course after you file for bankruptcy but before your case is discharged.

It includes a mandatory topic called “Coping with unexpected financial crisis.” The material must include how to identify alternatives to borrowing when faced with an unanticipated crisis and how to get advice from public and private agencies on dealing with a financial crisis.

Some of the other subjects covered in the classes include:

• Setting short and long-term financial goals
• Calculating the difference between gross and net monthly income
• Identifying fixed and variable monthly expenses
• Keeping accurate financial records
• Distinguishing between wants and needs
• Comparison shopping
• Wise use of credit
• Saving for emergency situations
• Checking credit scores.

The course is taught in person, online or can be done over the phone. It must last at least two hours and be administered by an agency approved by the Office of the U.S. Trustee. The teachers should provide learning material before the class begins, provide instruction on how to make use of those materials and offer tests to measure your comprehension of the material.

If you fail a test, you must speak with an instructor from the company that administered the program to discuss the problems you had with the material.

When you complete the course, you will receive a certificate verifying that you passed the course. In order to have your debts discharged, you must file that certificate of completion with the court. It can’t be faxed or emailed to the court. It must be filed with all other papers or your bankruptcy will not be discharged.

Frequently Asked Questions about Debtor Education