Before someone can file for bankruptcy protection they are required to take a pre-bankruptcy credit counseling course. This course is intended to review the client’s finances pre-filing to see if there are any other options they should consider before filing. Once the client completes this course the certificate is good for 180 days. This certificate is required in all Chapter 7 and Chapter 13 bankruptcy cases.
An issue that I am starting to see come up is the timing of when the counseling is done in regards to creditors filing adversary hearings alleging fraudulent intent. This is how the issue is coming up:
Client is paying their bills on time but is starting to have a hard time and decides to take the course to see if filing for bankruptcy could be a solution to their problems. They take the course and receive their TIME STAMPED certificate.
5 months pass and the client is still using her credit cards but she is also paying her monthly payment each month. At the end of month 5 the client is sued and realizes that she needs to file. She files for bankruptcy protection and correctly lists call credit cards listed in her name.
The credit card companies threaten an adversary on the basis that since she took the class months before filing she was someone planning this filing and using up as much credit as possible. Now the fact that she was being prudent is held against her.
Although our firm will vigorously defend these types of aggressive actions I see many firms fold and as a result the client is damaged. Of course if the client intentionally ran up the cards before filing they should be required to repay those charges. But in a case where the client is maintaining all payments but is pushed into filing by an unforeseen event (like a lawsuit, job loss, or divorce) they should not be presumed guilty until proven innocent.
If you are thinking about filing for bankruptcy I would recommend that you first set up a free appointment with a bankruptcy attorney so that they can review your potential case and see if you in fact need to wait to file or can file immediately.
I would advise clients to wait until the day or two before filing to complete the course just to avoid unnecessary hassles from creditors.