The United States Trustee Program (the "Program") announced today that on July 5, 2005, it will begin accepting applications for approval as a budget and credit counseling agency or provider of a financial management instructional course for bankruptcy filers, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA").
Consistent with the new law, for the pre-filing counseling mandated by the law, tax-exempt status under Section 501(c)(3) is not required for approval as a budget or credit counseling agency under BAPCPA, however, nonprofit status (typically incorporation as a nonprofit corporation) is a prerequisite, among other requirements. In addition, while required to be disclosed on the application, no particular accreditation or trade association membership is necessary for approval as a budget or credit counseling agency. For the pre-discharge education mandated by BAPCPA, providers of financial management instructional courses can be either nonprofit or for-profit entities.
Under the new rules, a nonprofit organization is defined as follows: "The Agency must be organized and operated as a nonprofit entity and have an independent board of directors, board of trustees, or other governing body, the majority of which (i) are not employed by such Agency and (ii) will not directly or indirectly benefit financially from the outcome of the counseling services provided by such Agency. An Agency may not engage in any conduct or transactions that generate or create the appearance of generating a private benefit for any individual or group."
The materials released today do not contain any specific fee caps or schedules, but require that all fees charged for counseling services be "reasonable" and provided without regard to a client's ability to pay. The instructions also make clear that counseling sessions must be "adequate" and include certain elements, and that the average length of an "adequate" counseling session is 90 minutes. In a requirement that may prove to be unobtainable for many if not most agencies, the application calls for a bond equal to 5% of the agency's prior year disbursements from trust accounts. Finally, the application requires that the agency "not pay or receive referral fees or other consideration for the referral of clients to or by the Agency."
The application forms and related materials can be found online at http://www.usdoj.gov/ust/eo/bapcpa/ccde/index.htm. For additional information, applicants can contact the Program at (202) 514-4100.
Under BAPCPA, which was enacted on April 20, 2005, all individual debtors who file bankruptcy on or after October 17, 2005 must undergo credit counseling within six months before they file bankruptcy and must complete a financial management instructional course after they file bankruptcy. With certain exceptions, an individual is not eligible to file bankruptcy without completing credit counseling, and is not eligible to receive a bankruptcy discharge without completing a financial management instructional course.
BAPCPA directs the U.S. Trustee to approve budget and credit counseling agencies and providers of financial management instructional courses according to criteria set forth in the law. It also directs the Clerk of the Bankruptcy Court to maintain a publicly available list of U.S. Trustee-approved budget and credit counseling agencies and financial management instructional courses.
Interested agencies should review the application and instructions carefully, as they make clear what the basic standards for approval will be.