Pre-Bankruptcy Credit Counseling in the US
A Complete Guide

Bankruptcy is a big step in the U.S., and the law here requires everyone who files for bankruptcy to first complete credit counseling. This rule is to help people and give them a chance to look at all their options before they decide on bankruptcy. But why the counseling? Credit Card Counseling ensures that debtors know and understand all the available options before the final step. This sometimes uncovers alternatives that are often missed, and sometimes offer better solutions to their circumstances.

So, ideally, pre-bankruptcy counseling is not just orders from the U.S. Courts but is a safeguard. This helps you make good decisions and offers a fresh start.

Note: According to data, bankruptcy filings have increased by 11.5% in the U.S. This shows that people are facing financial issues more than ever. And what does that mean? They need pre-bankruptcy credit counseling.

What Is Pre-Bankruptcy Credit Counseling?

Pre-bankruptcy credit counseling is a must for all who want to file for bankruptcy. Why? Because the government wants you to know all its pros and cons. Notably, you can do it online, over the phone, or in person.

In this process, the counselor helps you look at your income and debts and suggests the available options you can choose to pay your debts. This is to avoid bankruptcy—the last option for your unmanageable debts.

But you are free to reject their advice as well. It's completely your call to just attend the session and get the certificate. The process is not meant to push individuals away from bankruptcy, but rather to ensure it's the right solution.

The Legal Background: Why Is It Required?

Credit counseling is a legal requirement for all bankruptcy filers to check any available alternative. But what's its legal value? Bankruptcy is an irreversible decision, so the government makes sure that you have proper knowledge of your financial condition. For more accuracy, you must finish the session within 180 days before filing for bankruptcy. Once you finish the session, you will get a certificate that you must file with your bankruptcy paperwork.

Key Data and Trends in Bankruptcy Filings

The recent U.S. bankruptcy numbers show that money problems are rising. Check below:

  • There were 542,529 bankruptcies in June 2025. Last year, it was 486,613 in 2024.
  • The non-business filings hit 519,486 in 2025 (11.8% higher than last year).
  • Chapter 7 filings rose by 15% till June 2025.

But why this rise? Experts suggest the following reasons as root causes:

  • High interest rates
  • Record-high household debt
  • Emergency costing

Who Needs Pre-Bankruptcy Counseling?

Anyone, regardless of their job or age, must attend a pre-bankruptcy counseling session. This is U.S. law. But here are some special cases you should know:

  • Both husband and wife must attend and receive a certificate.
  • The rule covers both Chapter 7 and Chapter 13 bankruptcies.
  • Exceptions are rare and usually for emergencies.

Who Oversees the Counseling?

The U.S. Trustee Program that operates under the Department of Justice oversees the whole counseling program. It approves the agencies to offer pre-bankruptcy credit counseling outside of Alabama and North Carolina. These are the places where bankruptcy administrators handle approvals.

Note: Make sure you choose an approved agency for security and on-time progress.

Timing and Fees

  • Counseling must take place within 180 days prior to filing for bankruptcy.
  • The fees are typically around $50, but agencies are required to provide waivers or allow payment in installments if the client cannot afford it.

How Does the Process Work?

Check below:

  1. Choose an approved counseling agency only.
  2. Schedule your session, whether online or by phone.
  3. You need to share your income, debts, and expenses with the counselor.
  4. The counselor may help you build a budget and suggest alternatives like a Debt Management Plan (DMP).
  5. Get your certificate of completion. You'll need this for your bankruptcy filing.

Note: The whole process takes almost an hour. So be prepared.

What Happens in the Session?

A credit counseling session is not a test; rather, it's a counseling session from a professional. Here's what happens generally:

  • You share details about your financial situation.
  • The counselor helps you look at possible solutions.
  • The agency suggests a plan, if there is any way you could pay off your debts without bankruptcy.
  • You will get a certificate whether you accept the plan or not.

Note: You can reject their advice or accept it; it's on you completely! The main goal is to help you know the available options.

Online and Phone Counseling: Growing Trends

Now, the question is how you should join the session? According to the data, 61% of people choose phones, 24% choose online, and just 15% choose in-person counseling sessions. What does it mean? It shows that people are more comfortable with phone counseling, and this has become the norm. Why? Because it's accessible to all.

Note: The Federal government ensures the security of your online counseling sessions.

Costs and Fees

The average cost for a pre-bankruptcy counseling session is $50. However, most agencies would like to offer relief if you can't afford it. Why? Because U.S. law guides them to provide free or affordable counseling to all.

Choosing the Right Agency for Your Pre-Bankruptcy Counseling

While you apply for pre-bankruptcy counseling, choosing a reputable agency is crucial. Here's what to look for:

  • What range of services do they offer?
  • Can they help you avoid future debt?
  • Are they U.S. Government-approved?
  • Are their fees affordable?
  • What qualifications do counselors have?
  • Is your sensitive information secure?
  • Do counselors get any kind of commission for influenced advice?

The U.S. Trustee Program provides an up-to-date list of approved agencies nationwide.

What Is a Debt Management Plan?

A Debt Management Plan (DMP) is a method that helps you manage your debts. It's an alternative to bankruptcy, and agencies often provide this to people. Why? Because it saves them from the negative impact.

Here is how it works:

  1. You will deposit money into your credit counseling agency.
  2. They will use the deposit to pay your debts.

A well-planned DMP may:

  • Reduce your interest rates.
  • Lower fees
  • Extend payment timelines
  • Avoid bankruptcy
  • Rebuild your credit.

Who Typically Seeks Pre-Bankruptcy Counseling?

Any person who applies for pre-bankruptcy counseling must have:

  • An average income of $26,873.
  • Unsecured debts averaging $38,472

Note: The top reasons leading to bankruptcy are poor money management (66%) and loss of income (29%).

Alternatives to Bankruptcy: Is Credit Counseling Effective?

It is seen that credit counseling helps clients avoid bankruptcy. How? They offer education and budget planning that help people regain their financial control.

  • 75% of the people who enter credit counseling don't file bankruptcy.
  • 45% of clients who complete a DMP see credit scores rise by an average of 44 points in three years.
  • Credit counseling gives practical money management skills.

Required Education after Filing: The Debtor Education Course

After you file for bankruptcy, you must attend another session—The pre-discharge debtor education course.

  • It teaches basic money management, budgeting, and credit use.
  • Costs $50–$100 and usually takes about two hours to complete.
  • The certificate for this course is required for your debts to be officially discharged.

Why Do These Steps Matter?

Credit counseling and bankruptcy education target the root causes of debt. Here is what they do:

  • Offer tools and advice for budgeting and planning.
  • Help people to prevent similar issues.

Practical Tips for Those Considering Bankruptcy

  • Gather records of income, bills, and debts before your session.
  • Use counseling as a chance to ask questions and learn from opportunities.
  • Start early as soon as debt becomes overwhelming, to avoid last-minute mistakes.
  • Use the U.S. Trustee Program website to verify approved agencies before enrolling.

FAQs:

Is pre-bankruptcy credit counseling always needed?

Yes. It is a must as per U.S. Laws. Without a counseling certificate, your bankruptcy case will be dismissed.

Do both spouses need counseling?

Yes, each person who files for bankruptcy needs a certificate. Even as a couple, both applicants must have a certificate.

Can the session be done online?

Yes, notably, most people choose a counseling session by phone or online for convenience.

What if I can't afford the fee?

This is no big issue, as the U.S. government has directed agencies to either reduce or waive the fees if anyone is unable to pay.

Conclusion

Pre-bankruptcy credit counseling is a must for all. Why? Because it helps you understand your financial situation better and open new alternatives. It brings hope to your financial conditions. But why is it needed? Most agencies aim to provide each applicant the opportunity to find the best way out of debt.

Even if you face bankruptcy, remember:

  • Completing credit counseling is not just a rule; it's a resource for all. Use it to learn, plan, and move forward.
  • Choose only the Department of Justice or Bankruptcy Administrator-approved agencies.
  • Take advantage of the education and resources offered.
  • Most people who attend counseling sessions come with more information, a plan, and sometimes, tools to avoid bankruptcy.

Need Help Understanding Pre-Bankruptcy Credit Counseling?

Pre-bankruptcy credit counseling is a required step before filing for bankruptcy. It's important to understand the process and choose an approved agency. Connect with certified credit counselors to learn more about your options.