Legal Definitions - personal financial responsibility counseling

Personal financial responsibility counseling refers to a mandatory educational course that individuals must complete as part of the bankruptcy process. This counseling is designed to help debtors understand personal finance better, manage their money effectively, and avoid future financial difficulties. It is a crucial step for individuals seeking to have their eligible debts legally discharged (forgiven) by the court. This counseling must be provided by an organization approved by the U.S. Trustee Program and completed within a specific timeframe after a key meeting with creditors. Upon completion, a certificate is issued and must be filed with the bankruptcy court.

Here are some examples illustrating personal financial responsibility counseling:

• Example 1: A single individual managing credit card debt.

  Maria, a recent college graduate, found herself overwhelmed by credit card debt after an unexpected period of unemployment. When she decides to file for Chapter 7 bankruptcy, she attends her 341 Meeting of Creditors. Within 60 days of this meeting, Maria is required to complete a personal financial responsibility counseling course. This course teaches her practical budgeting skills, strategies for managing her spending, and how to rebuild her credit score, all of which are essential for the bankruptcy court to grant her a discharge of her eligible credit card debts.

• Example 2: A couple facing overwhelming medical bills.

  John and Emily, a married couple, filed for Chapter 13 bankruptcy after incurring substantial medical debt from a serious illness. As individual debtors, they are both required to participate in personal financial responsibility counseling. The counseling helps them create a realistic household budget that accounts for their ongoing expenses and their Chapter 13 repayment plan. This step is vital for them to successfully complete their bankruptcy plan and ultimately receive a discharge of their remaining eligible debts.

• Example 3: An entrepreneur with personal liability from a failed business.

  David's small business unfortunately failed, leaving him personally responsible for certain business loans he had co-signed, in addition to his personal mortgage and car loan. He files for Chapter 7 bankruptcy to address these debts. Although some of his financial issues stemmed from a business, David is filing as an individual debtor. Therefore, he must complete personal financial responsibility counseling. This course provides him with tools to manage his personal finances going forward, helping him distinguish between personal and business financial risks and ensuring he meets the court's requirements for discharging his eligible personal debts.