After filing a bankruptcy, a debtor is obligated to take a debtor education course. Only organizations that are approved by the Office of the United States Trustee is authorized to offer this course. Under a new change in Rule 1007(b)(7) of the Federal Rules Rules of Bankruptcy Procedure, these counseling organizations may file a certificate that the requirement has been met directly with the Court.
Section 727(a)(11) of the Bankruptcy Code states that a debtor will not receive a bankruptcy discharge order unless the debtor completes “an instructional course concerning personal financial management. . .” Several authorized agencies offer to complete this service online, usually for competitive prices from $8 to $19.
Bankruptcy Rule 1007(b)(7) states how a debtor is to confirm that this requirement has been satisfied. Before the recent change, the debtor was required to file a “statement of completion”, using official form 23.
As a practical matter, this has been a bit of a pain in the neck for attorneys for debtors to track. The attorney must draft and get to the debtor official form 23; the debtor needs to fill it out, sign it, and get it back to the attorney; and the attorney must file it. This is not a big deal, but the failure to file this document is very serious to the case.
Our local bankruptcy court clerk’s office will check to see if this requirement has been satisfied within two weeks of the deadline to object to discharge in a chapter 7 case. If form 23 has not yet been filed, the court will file a notice that this requirement must be completed or the case will be closed without discharge. The debtor will receive in the mail this notice, which they may or may not understand. The attorney will only receive an email that this warning has been filed. If the chapter 7 deadline to object to discharge has passed and the official form 23 has not been filed, and assuming nothing else is going on in the case (no pending motions or adversary proceedings, no assets to be administered), the court clerk will close the case without issuing a discharge, which is the whole purpose of filing the bankruptcy in the first place.
In chapter 13, the court will file this notice if plan payments have been completed and form 23 has not yet been filed. After that, the court clerk will check to see if the form has been filed by the deadline listed in the notice, it it is not, the case is closed without discharge.
Closing the case without discharge is not completely catastrophic; the debtor can complete the course, move to reopen the case, file the completion form, and then get a discharge, but this is an expensive option. If the debtor simply failed to take the financial management course, after been instructed to do so by his or her attorney, the debtor can expect the attorney to charge a fee to reopen the case, on top of the reopening filing fee ($260 in chapter 7, $235 in chapter 13). If the debtor completes the course and the attorney neglected to file the form on time, the attorney will have to swallow the time and money to reopen the case.
But, as of December 2013, Bankruptcy Rule 1007(b)(7) has been amended to authorize the counseling agency to file proof of completion directly with the court, bypassing the form 23 requirement. The rule was specifically changed to add the following language at the beginning of the rule: “Unless an approved provider of an instructional course concerning personal financial management has notified the court that a debtor has completed the course after filing the petition…”
We have heard that at least some agencies are already providing this service, and I would anticipate that all agencies will do so shortly, just to remain competitive.
Keeping track of the requirement to file a debtor education certificate is just part of the process of preparing a client for a bankruptcy and obtain a bankruptcy discharge. If you live in the Greater Rochester NY area and are considering a bankruptcy, please feel free to contact me at my website, for a phone consultation, at no charge, of your situation.