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Bankruptcy Alphabet: C is for Counseling

By Cathy Moran

Counseling, delivered by an approved provider, before the bankruptcy case is filed, is required.

Fail to get counseling and your case will be dismissed.

That’s my “C” word in the bankruptcy alphabet.

Prebankruptcy counseling is supposed to insert an objective third party between the beleaguered individual who needs relief and the greedy lawyer who, according to legend, is hustling everyone into bankruptcy, even those who may have other alternatives.

The requirement for such counseling is largely built on myth.  Most importantly, in my 40+ years of experience, very few people are willing to even meet a bankruptcy lawyer unless their debt problems are serious, usually really serious.  So bankruptcy lawyers rarely come in contact with people who don’t need to file.

When I interview a potential client and recommend they don’t file, it’s usually because they have significant assets they’d lose in bankruptcy.  The cost of debt relief is simply too large relative to the cost and the loss.

But let’s assume I was more interested in my fees than my client’s welfare, Congress’s remedy in credit counseling doesn’t look at the value of the debtor’s assets and the exemptions available.  If they did, the “counselors”  would be practicing law.  The person at the end of the phone is certainly not licensed to practice law in California, or, in reality, anywhere.

By requiring credit counseling, Congress managed to increase the cost to the debtor of filing a bankruptcy case.  It also spawned an entire industry. At the recent NACBA convention, there had to have been two dozen providers of credit counseling, clamoring for the attention of bankruptcy lawyers.

That’s the venial part of the story.  The sad part is that those who try to file bankruptcy without a lawyer frequently don’t know about the counseling requirement or the mechanism to seek a waiver.  Since 2005, the bankruptcy code requires the dismissal of cases where there is neither a credit counseling certificate or a properly obtained waiver.

Pro pers look dumbstruck when they learn that, having navigated the system sufficiently to have filed their case on their own, the case will be tossed out because they didn’t get credit counseling before they filed.

Maybe my “C” word should have been “Congress” who created this travesty. (Jay’s bankruptcy  “C” word is Creditor.)

As it is, this post is brought to you by the letter “C”.

Image courtesy of takomabibelot

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Filed Under: ABC's of bankruptcy, How bankruptcy works

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Comments

  1. David from bestdebtcounselling.co.za says

    November 16, 2011 at 6:19 am

    Nice article. I think that bankruptcy should be your last resort since it has a lot of effects on you and your family. It’s necessary to go for counseling first which is just as effective.

    • Cathy Moran says

      November 16, 2011 at 7:27 am

      Bankruptcy is obviously not the first choice for those in debt. But I have never had any client report that pre bankruptcy credit counseling added to their fund of knowledge or found that they didn’t really need to file bankruptcy.

      On the other hand, many clients praise the post filing debtor’s education exercise.

Trackbacks

  1. Bankruptcy Alphabet: C Is For Creditor says:
    November 7, 2011 at 9:07 pm

    […] C Is For Counseling […]

  2. C: Credit Counseling in Bankruptcy | Bankruptcy Blog from Los Angeles Attorney says:
    November 19, 2011 at 5:31 pm

    […] C Is For Counseling by, Cathy Moran […]

  3. Bankruptcy A to Z – C is for Chapter 7 | Marin Bankruptcy Law says:
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    […] Counseling by Cathy Moran […]

  4. Cosigner and Bankruptcy says:
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    […] C is for Counseling […]

  5. THE ?C? IN THE BANKRUPTCY ALPHABET | Christophercarrlaw's Blog says:
    December 2, 2011 at 11:12 am

    […] C is for Counseling […]

  6. C Is For Creditor says:
    December 4, 2011 at 2:56 pm

    […] Counseling […]

  7. "C" Is For Chapter Of Relief | Downriver Bankruptcy says:
    December 5, 2011 at 10:29 pm

    […] counseling […]

  8. C is for Creditors Meeting in the Bankruptcy Alphabet - says:
    December 6, 2011 at 2:52 pm

    […] Bankruptcy Alphabet-C is for Counseling by Cathy Moran, Northern CA […]

  9. Bankruptcy Alphabet From A – Z — JC Law Group says:
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    […] of Relief Collection Agencies Competence and Compassion Conversion Cosigner Counseling Cramdown Cramdown Credit counseling Credit counseling Creditor Creditor Creditors […]

  10. Bankruptcy Alphabet: C is for Cars — JC Law Group says:
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    […] of Relief Collection Agencies Competence and Compassion Conversion Cosigner Counseling Cramdown Cramdown Credit counseling Credit counseling Creditor Creditor Creditors […]

  11. Bankruptcy A-Z: C is for Cramdown | Metro Richmond Consumer, Bankruptcy and Small Business Lawyer | Goldstein Law Group says:
    December 21, 2011 at 8:45 am

    […] Agencies. C is for Competence and Compassion. C is for Conversion. C is for Cosigner. C is for Counseling or credit counseling or credit counseling. C is for Cramdown or Cramdown. C is for Creditor or […]

  12. The Bankruptcy Alphabet-”C” equals “Collection Agencies” says:
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    […] Attorney C = Creditor’s Meeting- Raymond Kempinski, Philadelphia Bankruptcy Attorney C = Counseling- Cathy Moran, Northern CA Bankruptcy Attorney C = Cramdown- Robert Doig, Colorado Springs Bankruptcy Attorney C = Cosigner- Bill Balena, Ohio […]

  13. C is for Congress : Los Angeles Bankruptcy Law Monitor says:
    January 30, 2012 at 1:19 pm

    […] my cue from Cathy Moran's blog article entitled, "C is for Counseling," where she wrote "Maybe my “C” word should have been “Congress” […]

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You've arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said "try").

Here, I allow myself to tell stories and express strong opinions on how I think law should work for the consumer and small businesses when it comes to debt.

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