Credit Counseling Requirements Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and the Pension Protection Act of 2006

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

Section 106 of P.L. 109-8, the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005 (BAPCPA), creates credit counseling requirements for consumers seeking to file for
bankruptcy under Chapter 7 (governing the liquidation of a debtor’s assets) and Chapter 13
(governing the financial reorganization of a debtor’s assets). BAPCPA amends the U.S.
Bankruptcy Code, 11 U.S.C. §109, to require an individual to receive credit counseling before
filing a petition for bankruptcy. In certain circumstances, these requirements may be waived.
BAPCPA also requires debtors, after they file for bankruptcy relief, to take a personal financial
management course. Both credit counseling agencies and personal financial management
instructional course providers must obtain approval from a U.S. trustee before offering a course to
satisfy these requirements. Section 106 of BAPCPA creates a new provision that specifies the
approval requirements for both credit counseling agencies and personal financial management
instructional courses. Finally, section 1220 of the Pension Protection Act of 2006 amends the
Internal Revenue Code and establishes new standards that a credit counseling organization must
meet to be exempt from federal income tax.

Credit Counseling Requirements Under the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005..................................................................................................................1
Overvi ew ....................................................................................................................... ............ 1
Approval Requirements for a Credit Counseling Agency.........................................................3
Approval Requirements for a Personal Financial Instructional Management Course..............4
Selected Cases Concerning Credit Counseling Requirements..................................................5
The Meaning of “Exigent Circumstances”.........................................................................6
“Adequate Services” by Approved Credit Counseling Agencies........................................7
Credit Counseling After Bankruptcy Petition Filed............................................................7
Meaning of “Date of Filing”...............................................................................................8
Credit Counseling Organizations and the Pension Protection Act of 2006.....................................8
Author Contact Information..........................................................................................................10

n April 2005, President Bush signed P.L. 109-8, the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (BAPCPA). The purpose of BAPCPA is not only to
“improve bankruptcy law and practice by restoring personal responsibility and integrity to ¹
the bankruptcy system,” but to ensure fairness of the system for both debtors and creditors. I

BAPCPA consists of a comprehensive package of reform measures pertaining to both
consumer and business bankruptcy cases. One of its many amendments requires debtors to ²
participate in credit counseling programs before filing for bankruptcy relief. BAPCPA’s credit
counseling provisions are intended to give consumers in financial distress an opportunity to learn
about the consequences of bankruptcy, such as the potentially devastating effect it can have on ³
their credit rating. BAPCPA also requires debtors, after they file for bankruptcy relief, to receive
personal financial management training. This training is intended to provide debtors with ⁴
guidance about how to manage their finances in order to avoid future financial difficulties.
On August 17, 2006, President Bush signed the Pension Protection Act of 2006 (P.L. 109-280).
Although the Act does not change BAPCPA’s credit counseling provisions, section 1220 of the
Pension Protection Act amends section 501 of the Internal Revenue Code, providing new
standards that a credit counseling agency must meet to be eligible for a federal income tax
exemption.

Section 106 of BAPCPA adds credit counseling as a prerequisite to Chapter 7 or Chapter 13 ⁵
bankruptcy filing or relief. Section 106(a) of BAPCPA amends section 109 of the Bankruptcy
Code to require an individual to receive credit counseling within the 180-day period preceding the
date of filing a petition for bankruptcy. The credit counseling must be provided by an approved ⁶
“nonprofit budget and credit counseling agency” and must consist of either an individual or ⁷
group briefing. This briefing, which may be conducted by telephone or via the Internet, must
outline the opportunities for credit counseling and must assist the debtor in performing a budget ⁸
analysis.

¹^H^.^R^e^{pt. 10}^9-³¹^{, p. 2.}
²^T^h^{e cred}ⁱ^t^co^un^selⁱⁿ^{g p}^r^o^vⁱ^sⁱ^oⁿ^s^h^a^{ve b}^een^t^h^{e sub}^j^ect^o^f^coⁿ^t^r^o^vers^y^.^P^rⁱ^o^{r t}^o^and^f^o^l^l^o^wⁱⁿ^g^t^h^{e enact}^m^eⁿ^t^o^f
^BA^P^C^P^A^,^t^h^ere^h^a^{ve b}^een^cl^ai^m^s^o^f^ab^u^sⁱ^v^{e p}^r^actⁱ^{ces b}^y^se^veral^me^m^b^{ers o}^f^t^h^{e cred}ⁱ^t^co^un^selⁱⁿ^{g i}ⁿ^d^u^s^t^r^y^.^Se^e
^S.Re^pt.¹⁰^9-5⁵^{; L}^e^slie^Lⁱ^nf^ie^ld,^Lightⁿⁱⁿ^g^Strⁱ^k^e^s^Thrⁱ^c^e^:^Em^e^r^gin^g^I^s^s^u^e^sⁱⁿ^Ba^nk^r^uptc^y^C^r^e^d^it^C^o^uns^e^lin^g,^25-¹^A^M^.
^B^AN^KR^.^I^NS^T^.J^{. 16 (}²⁰⁰⁶⁾^{. T}^h^is^r^e^por^t^doe^s^not^a^ddr^e^s^s^t^h^is^c^oⁿ^t^r^o^v^e^r^s^y^.
³^H^.^R^e^{pt. 10}^9-³¹^{, p. 18.}
⁴^Id.
⁵^{11 U}^.^S.C^.^§¹⁰^{1 e}^t^s^e^q.
⁶^H^e^r^e^ina^f^te^r^r^e^f^e^r^r^e^d^{to a}^s^“^c^r^e^d^it^c^ouns^e^lⁱⁿ^g^a^g^eⁿ^cy^.”
⁷^H^.^R^e^{pt. 10}^9-³¹^{, p. 54.}
⁸^Id.

Under the new section 109(h) of the Bankruptcy Code, a debtor may be exempt from the
mandatory credit counseling requirement in certain circumstances. For example, the requirement
does not apply to a debtor who resides in a district where the U.S. trustee has determined that
approved credit counseling agencies in that district are not reasonably able to provide adequate ⁹
services to such individuals. A debtor may also be temporarily exempted from the mandatory ¹⁰
credit counseling requirement if the debtor submits to the court a certification that (1) describes
exigent circumstances meriting a waiver of this requirement; (2) states that the debtor requested
credit counseling services from an approved credit counseling agency, but was unable to obtain
such services within the five-day period beginning on the date the debtor made the request; and ¹¹
(3) is satisfactory to the court. This exemption terminates when the debtor meets the
requirements for credit counseling participation, but not longer than 30 days after the case is filed, ¹²
unless the court, for cause, extends this period up to an additional 15 days. The requirements for
an exemption from credit counseling under section 109(h) are considered “stringent,” and a
failure to strictly follow the requirements has led to both denial of exemptions and an inability to ¹³
file for bankruptcy.
In addition, a debtor may be exempt from the mandatory credit counseling requirement if the
court determines, after notice and a hearing, that the debtor is unable to complete this requirement ¹⁴
because of incapacity, disability, or active military duty in a military combat zone. Incapacity,
under this provision, means the debtor is “impaired by reason of mental illness or mental
deficiency so that the debtor is incapable of realizing and making rational decisions with respect ¹⁵
to financial responsibilities.” Disability under the 11 U.S.C. § 109(h) provision means that “the
debtor is so physically impaired as to be unable, after reasonable effort, to receive credit ¹⁶
counseling whether by participating in person, or via telephone or Internet briefing.”
BAPCPA also amends the Bankruptcy Code to deny a discharge to Chapter 7 and Chapter 13 ¹⁷
debtors who fail to complete a personal financial management instructional course. This
requirement does not apply if the debtor resides in a district where the U.S. trustee has determined ¹⁸
that the approved instructional courses in that district are not adequate. Such determination must ¹⁹
be reviewed annually by the U.S. trustee. In addition, these provisions do not apply to a debtor
who the court determines, after notice and a hearing, is unable to complete this requirement

⁹^I^d^.;¹¹^U^.^S.C^.^§¹⁰⁹⁽^h)⁽²⁾^.^T^h^e^U^.^{S. tr}^us^te^e^is^a^p^p^o^inte^{d by}^the^U^.^{S. A}^ttorⁿ^e^y^G^e^ne^r^a^{l a}^{nd is}^a^u^t^h^o^r^iz^e^d^{to s}^upe^r^v^is^e
^the^a^d^mⁱ^nis^t^r^a^tion^of^C^h^a^p^te^r^{7 a}^{nd C}^h^a^p^te^r¹³^ba^nk^r^u^ptc^y^c^a^s^e^s^.^Se^e^{28 U}^.^S.C^.^A^.^§5⁸¹^{; 2}⁸^U^.^S^.^C^.^A^.^§586(^a⁾⁽³⁾^.
^S^o^m^e^st^at^{es al}^l^o^w^f^o^{r a “b}^an^kru^p^t^c^y^ad^mⁱⁿⁱ^st^rat^o^{r” t}^o^p^e^rf^o^r^m^t^hⁱ^s^ro^l^e^,^and^t^hⁱ^sⁱ^s^accep^t^a^b^l^{e un}^d^e^r^BA^P^C^P^A^.
¹⁰^{Use o}^f^t^h^{e t}^e^rm^“^certⁱ^fⁱ^catⁱ^oⁿ^”ⁱⁿ^BA^P^C^P^A^h^a^{s l}^e^d^t^o^s^o^m^e^coⁿ^t^rovers^y^.^T^h^{e t}^e^r^m^“certⁱ^fⁱ^catⁱ^oⁿ^,^{” wh}ⁱ^c^h^w^a^{s n}^o^t
^us^e^dⁱⁿ^the^B^a^nk^r^u^ptc^y^C^ode^prⁱ^o^r^{to B}^A^P^C^P^A^{, a}^p^pe^a^r^s^s^e^v^e^r^a^{l ti}^m^e^{s in the}²⁰⁰⁵^A^c^{t. No}^de^fⁱ^niti^oⁿ^f^o^{r the}^te^rm^wa^s
^inc^l^u^d^e^dⁱⁿ^BA^P^C^P^A^{. Co}^{urts a}^r^e^{split a}^s^to^h^o^w^to^a^p^p^l^y^the^te^r^m^{in re}^f^e^re^nc^e^{to se}^c^{tion 1}⁰⁹^.^Se^e^{, J}^o^{hn R}^a^o^,
^Bank^r^u^ptc^y^2.⁰⁽⁰⁵⁾^:^C^h^a^p^te^r^s^,^C^han^ge^s^,^and^C^h^alleⁿ^g^e^s^:^Ar^tic^le^:^Te^s^ting^the^Limⁱ^ts^of^the^Stat^ut^or^y^c^ons^tr^uc^ti^on
^D^o^c^t^rⁱ^ne^s^:^D^e^c^ons^tr^uc^ti^{ng t}^h^e²⁰^{05 B}^ank^r^u^ptc^y^Ac^t^,⁵⁵^A^m^{. U}^.^L^.^R^e^v^.¹⁴²^7,¹⁴^30-^{31 (}²⁰⁰⁶⁾^.
¹¹^{11 U}^.^S.C^.^§¹⁰⁹⁽^h)⁽³⁾⁽^A⁾^;^H^.^R^e^{pt. 1}^09-^31,^p^p^.^54-^55.
¹²^{11 U}^.^S.C^.^§¹⁰⁹⁽^h)⁽³⁾⁽^B⁾^;^H^.^R^e^p^t^{. 1}^09-^31,^p.⁵⁵^.
¹³^Se^e^A^r^tic^le^,^T^h^{e Y}^e^a^rⁱⁿ^R^evi^ew:^Ca^{se L}^a^{w Devel}^o^p^m^ent^s^un^d^e^{r t}^h^{e B}^aⁿ^k^rup^t^{cy A}^b^u^s^{e P}^r^even^tⁱ^o^{n an}^d^C^oⁿ^s^u^m^er
^P^r^o^t^ectⁱ^o^{n A}^c^t^of²⁰⁰⁵^,⁸²^N^.^D^a^k^.^L^.^R^e^v^.^297,³¹^{2 (}²⁰⁰⁶⁾^.
¹⁴^{11 U}^.^S.C^.^§¹⁰⁹⁽^h)⁽⁴⁾^.
¹⁵^{11 U}^.^S.C^.^§¹⁰⁹⁽^h)⁽⁴⁾^.
¹⁶^Id.
¹⁷^{11 U}^.^S.C^.^§⁷²⁷⁽^a⁾⁽¹¹⁾^;^{11 U}^.^S.^C^.^§¹³²⁸⁽^g⁾⁽²⁾^.
¹⁸^Id.
¹⁹^H^.^R^e^{pt. 10}^9-³¹^{, p. 55.}

because of incapacity, disability, or active military duty in a military combat zone.²⁰ Section ²¹
106(e) adds section 111 to the Bankruptcy Code. Under section 111(a), the clerk is required to
maintain a publicly available list of approved credit counseling agencies and personal financial
management instructional courses. Section 111(b) discusses the determinations that must be made
by a U.S. trustee before a credit counseling agency or a personal financial management course
can be approved.
Under section 111(b)(1), the U.S. trustee must undertake a thorough review of the qualifications
of the credit counseling agency or personal financial management instructional course to ensure
that the counseling services or course meets the standards set forth in section 111. The section
also allows a U.S. trustee to require that the credit counseling agency or course provider provide
information with respect to this review. If, prior to approval by the U.S. trustee, a credit
counseling agency or instructional course did not appear on the list required under section 111(a), ²²
then approval shall be allowed for a probationary period not to exceed six months. A U.S.
trustee may grant subsequent approvals for successive one-year periods thereafter if the
counseling agency or instructional course has met the requirements under section 111 for the ²³
preceding period and can satisfy these standards in the future.
Section 111(c), which was created by BAPCPA, provides the minimum requirements for approval
of a credit counseling agency. Under this section, a U.S. trustee shall only approve an agency that
demonstrates that it will provide qualified counselors, maintain adequate provision for
safekeeping and payment of client funds, provide adequate counseling with respect to client credit
problems, and deal responsibly and effectively with other matters relating to the quality, ²⁴
effectiveness, and financial security of the services it provides. Section 111(c)(2) elaborates on
these requirements. For a credit counseling agency to be approved, the agency must:
• have a board of directors, the majority of which are not employed by the
counseling agency and will not benefit directly or indirectly from the outcome of ²⁵
the counseling services;
• charge only a “reasonable” fee for counseling services, if the agency is to charge ²⁶
a fee, and provide services regardless of the ability to pay the fee;
• provide for the safekeeping and payment of client funds, including an annual ²⁷
audit of the trust accounts and employee bonding;

²⁰^Id.
²¹^P^r^esu^m^ab^l^y^,^“cl^er^{k” as re}^f^e^rr^ed^t^oⁱⁿ^sectⁱ^oⁿ¹⁰⁶⁽^{e) i}^s^t^h^{e cl}^{erk o}^f^t^h^{e Ban}^k^ru^p^t^cy^Co^u^r^t^.
²²^{11 U}^.^S.C^.^§¹¹¹⁽^b)⁽³⁾^.
²³^{11 U}^.^S.C^.^§¹¹¹⁽^b)⁽⁴⁾^,¹¹^U^.^S.C^.^{§ 1}¹¹⁽^b⁾⁽⁵⁾^.
²⁴^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽¹⁾^.
²⁵^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^A⁾^.
²⁶^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^B⁾^.^B^A^P^C^P^A^doe^s^not^de^fⁱ^ne^the^“^r^e^a^s^ona^bl^e^”^s^t^a^nda^r^d^,^how^e^v^e^r^{, it ha}^s^be^eⁿ^s^u^g^g^e^s^t^e^d^tha^t
^the^U.S.^truste^e^w^ould^beⁱⁿ^a^p^o^s^ition^to^de^fⁱ^ne^w^h^a^t^c^onstitu^te^{s a}^re^a^s^ona^ble^f^e^e^.^Se^e^Le^slie^{E. L}ⁱ^nfⁱ^e^ld,^St^ra^ng^e
^Be^dfe^llow^s^:^B^ank^r^u^ptc^y^Re^for^m^a^{nd M}^a^nd^ator^y^C^r^e^d^it^C^o^uns^e^lⁱⁿ^g^,^24-^{4 A}^m^{. B}^a^nk^r^.^L^.^J^.^12.
²⁷^{11 U}^.^S.C^.^§^§1¹¹⁽^C⁾⁽²⁾⁽^C⁾^.

• provide full disclosure to a client, including funding sources, counselor
qualifications, possible impact on credit reports, and any costs of such program to ²⁸
be paid by the client and how such costs will be paid;
• provide adequate counseling with respect to a client’s credit problems that
includes an analysis of such client’s current financial condition, factors that
caused such financial condition, and how such client can develop a plan to ²⁹
respond to the problems without incurring negative amortization of debt;
• provide trained counselors who receive no commissions or bonuses based on the
outcome of the counseling services provided by such agency, who have adequate
experience, and who have been adequately trained to provide counseling services ³⁰
to individuals in financial difficulty;
• demonstrate adequate experience and background in providing credit ³¹
counseling;
• have adequate financial resources to provide continuing support services for ³²
budgeting plans over the life of any repayment plan.
Under section 111(e), a district court may, at any time, investigate the qualifications of a credit
counseling agency and request documents to ensure the integrity and effectiveness of the agency.
If the credit counseling agency does not meet the requirements as set forth in section 111, the
district court may remove the agency from the section 111(a) approved list. A credit counseling
agency is also prohibited from providing information to a credit reporting agency concerning ³³
whether a debtor has received or sought instruction on personal financial management.
Section 111(d) lists the requirements for approval by the U.S. trustee for a personal financial ³⁴
management instructional course. During the initial six-month probationary period discussed
under section 111(b)(3), an instructional course must provide, at a minimum:
• trained personnel with adequate experience and training in providing effective ³⁵
instruction and services;

²⁸²⁵¹¹^U^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^D⁾^.
²⁹^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^E⁾^.
³⁰^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^F⁾^.
³¹^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^G⁾^.
³²^{11 U}^.^S.C^.^§¹¹¹⁽^c⁾⁽²⁾⁽^H⁾^.
³³^{11 U}^.^S.C^.^§¹¹¹⁽^g⁾⁽¹⁾^.
³⁴^R^e^quir^e^m^e^nts^f^o^r^the^pe^r^s^ona^{l m}^a^na^g^e^m^e^{nt ins}^t^r^u^c^tio^na^{l c}^our^s^e^a^r^e^{to be}^de^v^e^lope^d^{in a}^te^s^t^pr^og^r^a^m^,^dis^c^us^s^e^{d in}
^{11 U}^.^S.C^.^§¹⁰^{5 (}²⁰⁰⁵⁾^.^Se^c^tion¹⁰⁵^pr^ov^ide^s^{, a}^m^ong^ot^he^r^thiⁿ^g^s^,^tha^t^the^Dⁱ^r^e^c^t^o^r^of^the^Ex^e^c^u^tiv^e^O^f^fⁱ^ce^f^o^r^Uⁿ^ite^d
^Sta^t^e^s^T^r^us^te^e^s^m^u^s^t⁽¹⁾^c^ons^u^lt^w^{ith a}^wⁱ^de^r^a^ng^e^of^de^btor^e^duc^a^tion^e^x^pe^r^t^s^w^{ho ope}^r^a^te^fⁱ^na^nc^ia^{l m}^a^nag^e^m^e^nt
^ed^u^catⁱ^o^{n p}^r^o^g^{rams an}^d⁽²⁾^d^e^vel^o^p^{a f}ⁱⁿ^aⁿ^cⁱ^a^l^m^aⁿ^a^ge^men^t^t^r^aiⁿⁱⁿ^g^cu^rri^cu^l^u^m^an^d^m^a^t^e^ri^al^{s t}^h^at^can^b^e^u^s^ed^t^o^t^each
^indivⁱ^d^u^a^l^de^btor^s^h^o^w^{to m}^a^na^{ge the}ⁱ^r^fⁱ^na^nc^e^s^be^tte^r^.^T^h^e^Dⁱ^r^e^c^t^o^r^m^u^s^t^s^e^le^c^t^sⁱ^x^judicⁱ^a^l^dis^t^rⁱ^c^t^s^{to te}^s^t^t^h^e
^e^f^f^e^c^tiv^eⁿ^e^s^s^o^f^the^fⁱ^na^nc^ia^{l m}^a^na^g^e^m^e^{nt tr}^aⁱ^ning^c^u^r^r^ic^ulum^a^nd^m^a^te^rⁱ^a^l^s^f^o^r^aⁿ¹⁸^-^m^onth^pe^rⁱ^o^d^be^gⁱⁿⁿⁱ^ng^not^la^te^r
^thaⁿ²⁷^{0 da}^y^s^af^te^r^the^A^c^t’^s^eⁿ^a^c^tm^eⁿ^{t da}^te^{. Se}^e^{11 U}^.^S.C^.^§¹⁰^5.
³⁵^{11 U}^.^S.C^.^§¹¹¹⁽^d)⁽¹⁾⁽^A⁾^.

• learning materials and teaching methodologies that are designed to help debtors
understand personal financial management and are consistent with stated ³⁶
objectives directly related to the goals of such instructional course;
• adequate facilities situated in reasonably convenient locations at which such
instructional course is offered, except that such facilities may include the
provision of such instructional course by telephone or through the Internet, if ³⁷
such instructional course is effective;
• the preparation and retention of reasonable records (which shall include the
debtor’s bankruptcy case number) to permit evaluation of the effectiveness of
such instructional course, including any evaluation of satisfaction of instructional
course requirements for each debtor attending such instructional course, which
shall be available for inspection and evaluation by the Executive Office for
United States Trustees, the United States trustee, or the chief bankruptcy judge ³⁸
for the district in which such instructional course is offered;
• if a fee is charged for the instructional course, charge a reasonable fee, and ³⁹
provide services without regard to ability to pay the fee.
There are additional requirements necessary for approval of a personal financial management
course during any one-year period following the initial probationary period. An instructional
course provider must demonstrate that the course has satisfied the requirements of section ⁴⁰
111(d)(1). Also, under section 111(d)(2), an instructional course provider must demonstrate that
the course has been effective in assisting a substantial number of debtors to understand personal
financial management and that the course is otherwise likely to increase substantially the debtor’s
understanding of personal financial management.
Bankruptcy courts have examined a number of issues concerning BAPCPA’s credit counseling
requirements. Most commonly, courts have looked at the provisions of section 109(h) and have ⁴¹
ruled on (1) what circumstances constitute sufficient grounds to “waive” the credit counseling
requirements and (2) the period of time in which a debtor must receive credit counseling to be
eligible for filing for bankruptcy. The following cases present some of the circumstances under ⁴²
which the requirements of section 109(h) have been analyzed.

³⁶^{11 U}^.^S.C^.^§¹¹¹⁽^d)⁽¹⁾⁽^B⁾^.
³⁷^{11 U}^.^S.C^.^§¹¹¹⁽^d)⁽¹⁾⁽^C⁾^.
³⁸^{11 U}^.^S.C^.^§¹¹¹⁽^d)⁽¹⁾⁽^D⁾^.
³⁹^{11 U}^.^S.C^.^§¹¹¹⁽^d)⁽¹⁾⁽^E⁾^.
⁴⁰^{11 U}^.^S.C^.^§¹¹¹⁽^d)⁽²⁾^.
⁴¹^It^sh^ou^l^d^b^eⁿ^o^t^e^d^t^h^at^w^hⁱ^l^e^sectⁱ^oⁿ¹⁰⁹⁽^h⁾⁽³^),^{as w}^e^l^l^{as so}^m^e^co^u^r^t^s^,^ref^e^{r t}^o^{a w}^aⁱ^v^{er o}^f^t^h^{e cred}ⁱ^t^co^un^selⁱⁿ^g
^req^uⁱ^rem^eⁿ^t^s,^t^h^{e w}^o^rd^“w^ai^v^e^r”^{as u}^s^edⁱⁿ^t^h^{s sect}ⁱ^oⁿ^m^a^y^b^e^mⁱ^sl^eadⁱⁿ^g.^A^d^e^b^t^o^r^w^h^o^recei^{ves a “w}^ai^{ver” o}^f^t^h^e
^c^r^e^d^{it c}^o^uⁿ^s^e^ling^r^e^q^u^ir^e^m^eⁿ^ts^unde^r^s^e^c^tion¹⁰⁹⁽^h)⁽³⁾^m^u^s^t^ob^taⁱⁿ^this^c^o^uns^e^ling^w^ithin³⁰^da^y^s^af^te^r^the^ba^nk^r^u^ptc^y
^c^a^s^e^is^f^ile^{d, un}^le^{ss this}^pe^riod^is^e^x^te^nde^{d f}^o^{r a}ⁿ^a^d^d^itio^na^l¹⁵^da^y^s^by^a^c^{ourt. Se}^e^H.Re^pt.¹^09-^31,^{p. 5}⁵^{. T}^h^e^c^o^{urt i}ⁿ^th
^In^re^Dⁱ^x^on,³^{38 B.R}^.³⁸³^(B.A^{.P. 8}^Cⁱ^r^.²⁰⁰⁶⁾^poi^nte^d^o^u^{t t}^h^is^di^s^c^r^e^pa^ncy^a^{nd s}^t^a^t^e^d^tha^t^w^h^a^t^a^c^our^t^is^a^u^t^hor^iz^e^d
^t^o^gran^t^w^o^u^l^d^b^e^b^e^t^t^e^{r d}^e^scri^b^e^{d as a “d}^ef^err^a^l^.^”
⁴²^W^h^ile^not^dis^c^us^s^e^d^{in t}^h^is^r^e^p^o^r^t^{, o}ⁿ^e^c^ontr^o^v^e^r^s^ia^{l is}^s^u^e^tha^t^c^o^u^r^ts^ha^v^e^c^ons^ide^r^e^d^is^w^h^e^t^he^r^a^b^a^nk^r^uptc^y
^p^e^titioⁿ^sh^o^u^ld^b^e^dⁱ^sm^issed^o^r^st^rick^en^d^u^e^to^{a d}^e^b^t^o^{r’s f}^a^ilu^{re to}^receiv^e^cred^{it c}^ouns^e^lⁱⁿ^g^.^Uⁿ^de^r^B^A^P^C^P^A^{, w}^h^e^t^he^r
^a^c^a^s^e^is^dism^is^s^e^{d or}^s^t^rⁱ^c^k^eⁿ^ha^s^dif^f^e^r^e^{nt im}^plic^a^ti^ons^f^o^r^de^bt^or^s^.^For^a^dis^c^us^sⁱ^oⁿ^of^this^is^s^u^e^,^s^e^e^In^re^S^a^l^azar,
⁽^c^onti^nue^d.^..)

As discussed above, under section 109(h)(3), a debtor may be temporarily exempted from
mandatory credit counseling if debtor submits to the court a certification that (1) describes
exigent circumstances meriting a waiver of this requirement; (2) states that the debtor requested
credit counseling services from an approved credit counseling agency, but was unable to obtain
such services within the five-day period beginning on the date the debtor made the request; and
(3) is satisfactory to the court. In Dixon, a Chapter 13 debtor filed a certification requesting a
waiver of credit counseling. In his certification, the debtor claimed exigent circumstances based
on the fact that a foreclosure sale was scheduled for the debtor’s home on the same day as the ⁴³
bankruptcy filing. Further, the debtor claimed that after he learned of the credit counseling
requirement, he was informed that it would be two weeks before credit counseling could be
obtained over the telephone and 24 hours before the counseling could be accessed by the Internet.
Based on these circumstances, the debtor argued that it was impossible for him to receive credit
counseling prior to the foreclosure sale.
The bankruptcy court refused to waive the credit counseling requirement and denied the
bankruptcy petition. On appeal, the U.S. Bankruptcy Appellate Panel for the Eighth Circuit
considered whether the bankruptcy court erred in its decision to deny the waiver. The Panel
discussed the meaning of “exigent circumstances” and pointed out that there are two
requirements: first, that there be exigent circumstances and second, that the exigent circumstances
must merit a waiver of the credit counseling requirement. In discussing whether a waiver of credit
counseling requirements is appropriate, the Panel explained that a debtor’s exigency must be such
that it precludes a debtor from obtaining the credit counseling within the five-day “window” ⁴⁴
preceding the bankruptcy.
The Panel went on to describe “exigent” as meaning “that the debtor finds himself in a situation
in which adverse events are imminent and will occur before the debtor is able to avail himself of ⁴⁵
the statutory [counseling].” The Panel acknowledged that in virtually all cases (including the
instant case) debtors have exigent circumstances. The real question, the Panel explained, was
whether exigent circumstances present were deserving of a waiver. The Panel noted that in the
earlier decision, the court had observed that state law required 20 days notice of foreclosure. With
that much notice, the Panel found, the circumstances were not exigent. The Panel concluded that
the bankruptcy court had not abused its discretion in denying the waiver and affirmed the ⁴⁶
decision.

^(...c^on^tin^ue^d)
³³⁹^B^.^R^.⁶²^2,⁶³^3-³⁴⁽^B^aⁿ^k^r^.^S.^D^.^T^e^x^.²⁰⁰⁶⁾^.
⁴³^In^re^Di^xo^n,³³^{8 B}^.^R^.³⁸³^,³⁸⁸⁽^B^.^A^.^P^.⁸^th^Cⁱ^r^.²⁰⁰⁶⁾^,^aff’g^In^re^Di^xoⁿ^,⁽^B^an^kr^.^E.^D.^Mo^.^N^o^v.^10,²⁰⁰⁵⁾^.
⁴⁴^T^h^e^P^a^ne^{l a}^l^s^o^dⁱ^sc^usse^{d the}^m^e^aⁿ^ing^of^the^te^rm^“^s^a^tis^f^act^o^r^y^t^o^t^h^{e co}^u^r^t^”^as^u^s^edⁱⁿ^sectⁱ^o^{n 10}⁹^.^T^h^{e P}^aⁿ^e^l
^exp^l^aiⁿ^e^d^t^h^at^w^hⁱ^l^e^t^h^{e m}^eanⁱⁿ^{g o}^f^t^h^{e p}^h^r^{ase i}^s^uⁿ^c^l^ear,ⁱ^tⁱ^s^f^a^{ir to in}^te^rpre^{t it}^a^s^aⁿⁱⁿ^dic^a^tio^{n t}^h^a^t^Cong^re^{ss w}^a^nte^d
^c^our^ts^t^o^ha^v^e^s^o^m^e^dis^c^r^e^{tion u}ⁿ^d^e^r^the^s^t^a^t^u^t^e^.^In^re^Dⁱ^x^on,³³⁸^B^.^R^.^a^t³⁸⁷^.
⁴⁵^In^re^Di^xo^n,³³^{8 B}^.^R^.^at³⁸⁸^.
⁴⁶^S^{ee a}^l^so^In^re^Kim^m^e^l^{, No. 0}⁶^-0⁰⁵³^9,²⁰⁰⁶^Ba^nk^{r. L}^E^X^I^S¹⁸⁷⁴⁽²⁰⁰^{6) (A}^de^bt^{or w}^a^{s not e}ⁿ^t^itle^{d t}^o^a^w^a^iv^e^r^o^f^the
^cred^{it co}^uⁿ^selin^g^req^u^irem^en^{t b}^ecau^{se th}^{e sch}^e^d^u^lⁱⁿ^g^o^f^{a f}^o^reclo^s^u^r^{e sale o}ⁿ^t^h^{e f}^ilin^g^d^a^{te w}^a^{s n}^o^t^ex^ig^en^t
^cⁱ^rc^um^s^t^aⁿ^c^e^s^w^h^eⁿ^he^kⁿ^e^w^a^{bout t}^h^e^s^a^le^f^o^{r thre}^e^m^onths^aⁿ^d^h^a^{d f}^ile^{d a}^prior^ba^nk^ru^ptc^y^pe^titio^n).^Bu^{t se}^e^In^re
^C^h^ilds^,³^{55 B}^.^R^.⁶²^{3 (}^B^aⁿ^k^r^{. D}^.^Md.²⁰⁰⁵⁾⁽^D^e^b^tor^Me^lv^{in C}^a^r^t^e^r^s^oug^{ht a}^w^a^iv^e^r^of^the^c^r^e^d^{it c}^o^uⁿ^s^e^ling^r^e^quir^e^m^e^nt
^b^ecau^{se o}^f^{a sch}^e^d^u^l^ed^f^o^reclo^s^u^r^{e o}ⁿ^hⁱ^{s h}^o^m^e^th^{e f}^o^llo^wⁱⁿ^g^d^a^y^aⁿ^d^anⁱⁿ^a^b^ility^to^g^e^{t an}^ap^p^oⁱⁿ^t^m^eⁿ^t^f^o^{r cred}^it
^c^ouns^e^lⁱⁿ^g^w^{ithin f}ⁱ^v^e^day^s^{. T}^h^e^c^our^{t g}^r^aⁿ^te^d^the^w^a^iv^e^r^{, a}^{nd op}ⁱⁿ^e^d^t^h^a^t^“^t^he^s^t^aⁿ^da^r^d^f^o^r^e^x^ig^eⁿ^{t c}ⁱ^r^c^um^s^t^aⁿ^c^e^s^s^e^t
^f^o^{rth in}^[^s^e^c^tioⁿ¹⁰^9(h)^]^{is m}ⁱ^nim^a^{l. It re}^q^u^ire^s^on^ly^tha^t^t^h^{e d}^e^bt^o^r^st^at^{e t}^h^{e exi}^s^t^eⁿ^{ce o}^f^so^m^e^l^o^o^mⁱⁿ^{g even}^t^t^h^at
⁽^c^onti^nue^d.^..)

As mentioned above, under section 109(h)(2), a debtor may be exempt from credit counseling if
the debtor resides in a district where the U.S. trustee has determined that approved credit
counseling agencies are not reasonably able to provide adequate services to such individuals. In
Petit Louis, the debtor, who could only speak and understand Creole, filed a Chapter 7 ⁴⁷
bankruptcy petition. Because the debtor could not obtain the credit counseling in Creole, and
because he could not afford to hire an interpreter, the debtor requested that the U.S. trustee either
waive the credit counseling requirement, provide a Creole interpreter, or decertify the approved
counseling agencies for failure to provide Creole speaking counselors. The U.S. trustee declined
the requests of the debtor, and the debtor then applied to the bankruptcy court for a waiver of the
counseling requirements. The U.S. trustee claimed, among other things, that the trustee had no
responsibility to provide language interpreters and that lack of English capability was not a
sufficient reason for a waiver. The court found that the credit counseling agencies in the district
were not reasonably able to provide adequate services to the debtor, and the court waived the
credit counseling requirement.
On a motion for reconsideration, the U.S. trustee argued that the court did not have the authority
to waive the credit counseling requirement. The court disagreed and ruled that not only could a
court waive the credit counseling requirement under section 109(h)(3), it also had the authority to
waive the requirement under section 109(h)(2). The U.S. trustee also argued that the court did not
have the right to review a U.S. trustee finding that credit counseling agencies in the district were
“adequate.” The court again disagreed and found that the forum was proper.
The court affirmed its determination that credit counseling services in the Southern District of
Florida were inadequate for this debtor. The court explained that Mr. Petit-Louis had properly
invoked the court’s jurisdiction by notifying the U.S. trustee that he intended to challenge the
adequacy of the credit counseling available, and giving the U.S. trustee an opportunity to respond.
The U.S. trustee’s motion for reconsideration was denied.
BAPCPA amends section 109 of the Bankruptcy Code to require an individual to receive credit
counseling prior to filing a petition for bankruptcy. In general, most courts have strictly followed
this provision and have been reluctant, for any reason, to accept a bankruptcy petition when credit
counseling was sought or obtained after the petition was filed. For example, in Davenport, a
debtor claimed she was unable to receive pre-petition counseling due to the repossession of her ⁴⁸
car. She later obtained counseling after filing a bankruptcy petition and sought to be excused
from the pre-petition requirement. The debtor claimed that equity principles (i.e., “no harm, no
foul”) should apply to her because she completed the counseling after filing for bankruptcy.
The bankruptcy court explained that the only way to excuse compliance with the pre-petition
requirement was to meet the three requirements necessary for a waiver; equity principles would

^(...c^on^tin^ue^d)
^re^nde^{rs pre}^p^e^tit^io^{n c}^r^e^d^{it c}^o^uⁿ^se^ling^to^be^inf^e^a^s^ible^.”^Id^.^a^t⁶³^0.)
⁴⁷^In^re^P^e^tit^L^ouis^,³⁴^{4 B}^.^R^.⁶^{96 (}^B^aⁿ^k^r^{. S.D}^.^F^l^a^.²⁰⁰⁶⁾^.
⁴⁸^In^re^D^a^v^e^npor^t,³^{35 B}^.^R^.²¹^{8 (}^B^aⁿ^k^r^{. M.D}^.^F^l^a^.²⁰⁰⁵⁾^.

not suffice. Although the court noted that exigent circumstances were present, it found that to be a
debtor, an individual must establish that a request for credit counseling was made before the ⁴⁹
petition was filed. The court dismissed the bankruptcy petition.
Section 109 of the Bankruptcy Code states that credit counseling must be obtained “within the

180-day period preceding the date” of filing for bankruptcy. In Warren, a debtor received credit ⁵⁰

counseling on the day he filed his bankruptcy petition. Although the debtor filed certain
documentation with the court in a timely manner, the debtor filed the certificate of credit
counseling after filing his bankruptcy petition.
The U.S. trustee claimed that the case should be dismissed because, under the statute, the
certificate of credit counseling was required to be filed with the bankruptcy petition and
counseling had to be received at least one day before the filing date. The debtor argued that the
case should be allowed to proceed because credit counseling was obtained pre-petition. The
Bankruptcy Court sided with the debtor and refused to dismiss the case. The court found the late
filing of the credit counseling certificate was not “automatically fatal” to the debtor’s case, and
stated that because the debtor had already received credit counseling, the requirement for filing
the certification with the bankruptcy petition was a matter of “form over substance.” The court
also discussed the meaning of the word “date” and concluded that “date” refers to not only a
specific calendar day, but to a specific day, month, year, and time of day. The debtor had
complied with the requirements of 109(h)(1) because he had received credit counseling a few ⁵¹
hours before filing for bankruptcy.

Under prior law, credit counseling organizations were eligible for a federal income tax exemption
under Internal Revenue Code section 501(c)(3) or 501(c)(4). Section 1220 of the Pension
Protection Act of 2006 (P.L. 109-280) amends the Internal Revenue Code and establishes the ⁵²
following additional requirements that credit counseling organizations must meet to claim this
income tax exemption:

⁴⁹^W^hⁱ^l^e^m^o^st^co^u^r^t^s^h^a^{ve reach}^ed^t^h^{e same d}^eci^si^oⁿ^{as Dave}^npor^{t (}^s^ee,^e.^g^.^,^In^r^e^G^e^e^,^{332 B}^.^R^.⁶⁰²^,⁶⁰³^-⁰^{4 (}^B^aⁿ^k^r^.
^W^.^D^.^Mo.²⁰^05)),^a^t^le^a^s^{t o}ⁿ^e^c^o^{urt ha}^s^f^o^u^nd^tha^t^t^h^e^c^o^m^p^le^tion^of^c^r^e^d^{it c}^ouns^e^lⁱⁿ^g^a^f^te^r^f^iling^a^pe^titio^{n f}^o^r
^ba^nk^r^uptc^y^is^s^u^f^f^ic^ie^{nt un}^de^r^c^e^r^ta^{in c}ⁱ^r^c^um^s^t^aⁿ^c^e^s^.^Se^e^In^re^B^r^ic^k^s^{in, 34}^{6 B}^.^R^.⁴⁹⁷⁽^B^aⁿ^k^r^{. N}^.^D^.^C^a^{l. 20}⁰⁶⁾^.
⁵⁰^In^re^W^a^r^r^e^{n, 33}^{9 B}^.^R^.⁴⁷⁵⁽^B^aⁿ^k^r^{. E.D}^.^A^r^k^.²⁰⁰⁶⁾^.
⁵¹^B^u^t^see,^e.^g^.^,^In^r^e^Mⁱ^l^l^s,³⁴^{1 B.}^R.¹⁰⁶^(Ban^kr.^D^.^Di^st^.^C^o^l^.²⁰⁰⁶^),^w^h^{ere t}^h^{e co}^u^r^t^f^o^un^{d t}^h^at^t^h^e^w^o^rd^“d^at^{e” d}^o^e^s
ⁿ^o^tⁱⁿ^cl^ud^{e t}ⁱ^m^{e o}^f^d^a^y^,^exc^e^p^tⁱⁿ^{a si}^t^u^atⁱ^oⁿ^su^c^h^{as a co}ⁿ^t^ract^,^w^h^{ere t}^h^{ere i}^s^{a sp}^eci^fⁱ^{c re}^f^e^r^eⁿ^{ce t}^o^t^h^{e t}ⁱ^m^{e o}^f^d^a^y^.
⁵²^T^h^e^P^e^nsⁱ^oⁿ^P^r^o^t^e^c^tion^A^c^{t c}^ontaⁱ^ns^ne^w^r^e^quir^e^m^e^nts^f^o^r^“^c^r^e^d^{it c}^ouns^e^lⁱⁿ^g^or^g^a^niz^a^tions^”^t^h^a^t^pr^ov^ide^“^c^r^e^d^it
^c^ouns^e^lⁱⁿ^g^s^e^r^v^ic^e^s^.”^T^h^e^te^r^m^“^c^r^e^{dit c}^o^uns^e^ling^s^e^r^v^ic^e^s^”^is^de^fⁱ^ne^{d by}^the^A^c^{t a}^s^“^t^he^pr^ov^iding^of^e^duc^a^tio^na^l
^inf^o^rm^a^{tion to t}^h^e^g^e^ne^ra^{l pu}^blic^on^bu^dg^e^ting^,^pe^rsoⁿ^a^l^fⁱ^na^nc^e^,^fⁱ^na^nc^ia^{l lite}^ra^c^y^{, sa}^vⁱ^ng^a^{nd spe}ⁿ^dⁱ^ng^pra^c^tic^e^s^{, a}^nd
^the^souⁿ^d^use^of^c^ons^um^e^r^c^r^e^d^it,”^a^s^we^{ll a}^s^“^t^he^a^ssistin^g^of^indivⁱ^dua^{ls a}ⁿ^{d f}^a^m^ilie^{s w}^{ith f}ⁱ^na^nc^ia^l^pro^b^le^m^s^b^y
^pr^ov^idiⁿ^g^the^m^w^{ith c}^ouns^e^ling^,^”^or^a^c^o^m^b^ina^tⁱ^on^of^the^s^e^s^e^r^v^ic^es^{. I}^R^C^§⁵⁰¹⁽^q)⁽⁴⁾⁽^A⁾^.^C^r^e^d^{it c}^o^uⁿ^s^e^ling^a^g^eⁿ^cⁱ^e^s^,
^a^s^s^p^e^cⁱ^fⁱ^e^d^{in s}^e^c^tions¹⁰⁹^a^nd¹¹¹^of^the^B^a^nk^r^uptc^y^Co^d^e^,^can^{be co}ⁿ^sⁱ^d^ered^“credⁱ^t^co^un^selⁱⁿ^{g organ}ⁱ^zatⁱ^oⁿ^s^.^”

• The organization must provide credit counseling services tailored to the specific ⁵³
needs and circumstances of consumers.
• The organization does not make loans to debtors (other than loans with no fees or ⁵⁴
interest) and does not negotiate the making of loans on behalf of debtors.
• The organization must provide services for the purpose of improving a
consumer’s credit record, credit history, or credit rating only to the extent that
such services are incidental to providing credit counseling services. Separate fees ⁵⁵
may not be charged for these services.
• The organization does not refuse to provide credit counseling services to a
consumer due to the inability of the consumer to pay, the ineligibility of the
consumer for debt management plan enrollment, or the unwillingness of the ⁵⁶
consumer to enroll in a debt management plan.
• The organization establishes and implements a fee policy that is reasonable⁵⁷ and
can be waived if the consumer cannot pay. The fee charged cannot be based on
the consumer’s debt or the savings a consumer gets from using the services, ⁵⁸
except as provided by state law.
• The organization must have a diverse board of directors (or other governing
body) that is controlled by persons who represent the broad interests of the
public, such as public officials acting in their capacities as such, persons having
special knowledge or expertise in credit or financial education, and community
leaders. Not more than 20% of the voting power of the board may be vested in
persons who are employed by the organization or who will benefit financially,
directly or indirectly, from the organization’s activities (other than through the
receipt of reasonable directors’ fees or the repayment of consumer debt to
creditors other than the credit counseling organization or its affiliates). Not more
than 49% of the voting power of the board may be vested in persons who are
employed by the organization or who will benefit financially, directly or
indirectly, from the organization’s activities (other than through the receipt of ⁵⁹
reasonable directors’ fees).

⁵³^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^A⁾⁽ⁱ⁾^.
⁵⁴^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^A⁾⁽ⁱ⁾^.
⁵⁵^{26 U}^.^S.C.^§⁵⁰^1(q)(¹^)(A^{)(iii); 2}⁶^U.S.C.^§⁵⁰^1(q)(¹^)(A^)(iv⁾^.
⁵⁶^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^B⁾^.^Ma^ny^c^r^e^d^{it c}^o^uⁿ^s^e^ling^a^g^eⁿ^cⁱ^e^s^of^f^e^r^voluⁿ^ta^r^y^“^d^e^b^t-^m^a^na^g^e^m^e^{nt pla}ⁿ^s^e^r^v^ic^es^”^{to the}ⁱ^r
^coⁿ^s^u^m^{er cl}ⁱ^eⁿ^t^s.^T^h^{ese servi}^ces,^{as d}^e^fⁱⁿ^e^d^b^y^t^h^{e P}^eⁿ^sⁱ^oⁿ^P^r^ot^ectⁱ^oⁿ^A^c^t^,^{are “rel}^at^ed^t^o^t^h^{e rep}^a^ymen^t^,
^c^ons^oli^d^a^tio^n,^or^r^e^s^t^r^u^c^t^ur^ing^of^a^c^ons^um^e^r^’^s^de^{bt, a}ⁿ^{d inc}^l^ude^[^]^the^ne^g^o^tia^ti^{on w}^{ith c}^r^e^dⁱ^t^or^s^of^low^e^r^inte^r^e^s^t^r^a^te^s^,
^the^w^a^iv^e^r^or^r^e^duc^tion^of^f^e^e^s^{, and t}^h^e^m^a^r^k^e^ting^a^{nd pr}^oc^e^s^sⁱ^ng^of^de^{bt m}^a^na^g^e^m^e^{nt pla}ⁿ^s^.^”^Uⁿ^de^r^de^{bt m}^a^na^g^e^m^e^nt
^p^l^an^s,^{a con}^s^u^m^{er t}^y^pⁱ^cal^l^y^m^a^ke^{s a m}^oⁿ^t^h^l^y^p^a^ymen^t^t^o^t^h^{e agen}^cy^,^an^d^t^h^{e agen}^c^y^dⁱ^st^ri^b^u^t^{es a}^p^a^ymen^t^t^o^t^h^e
^coⁿ^s^u^m^{er’s cred}ⁱ^t^o^rs.^T^h^{e agen}^c^y^m^a^{y ret}^aⁱⁿ^{a p}^o^r^tⁱ^oⁿ^o^f^t^h^{e co}ⁿ^s^{umer’s p}^a^ym^en^t^s^t^o^co^{ver cert}^aⁱⁿ^co^st^{s asso}^ci^at^ed
^wⁱ^t^h^t^h^{e d}^e^b^t^m^aⁿ^a^g^e^m^eⁿ^t^p^l^an^.^Iⁿ^m^aⁿ^y^cas^es,^w^h^en^credⁱ^t^o^{rs are}^p^aⁱ^d^,^t^h^{e cred}ⁱ^t^o^r^{s m}^a^k^e^{a p}^a^ym^eⁿ^t^t^o^t^h^{e credi}^t
^c^ouns^e^lⁱⁿ^g^a^g^eⁿ^cy^.
⁵⁷^T^h^{e Jo}ⁱⁿ^t^C^o^mmⁱ^t^t^{ee o}ⁿ^T^a^xatⁱ^oⁿ^,ⁱⁿⁱ^t^s^exp^l^an^atⁱ^o^{n o}^f^t^h^e^P^eⁿ^sⁱ^oⁿ^P^r^o^t^ectⁱ^o^{n A}^c^t^,^st^at^{es t}^h^at^w^h^et^h^e^{r a cred}ⁱ^t
^c^ouns^e^lⁱⁿ^g^or^g^a^niz^a^tion’^s^f^e^e^s^a^r^{e c}^ons^is^te^nt^w^{ith a}^s^p^e^cⁱ^fⁱ^c^s^t^a^t^e^law^is^only^ev^ideⁿ^c^e^tha^t^a^f^e^e^is^r^e^a^s^ona^ble^;^it^isⁿ^o^t
^de^te^rm^ina^tiv^e^.^Te^c^hnic^a^{l Ex}^pl^an^a^tion^{of H}^.^R.^4,^The^‘^P^eⁿ^sⁱ^on^Pr^ot^e^c^{tion Ac}^t^of²⁰^06’^,^p^r^ep^{ared b}^y^t^h^{e st}^aff^o^f^t^h^{e Jo}ⁱⁿ^t
^C^o^m^m^itte^e^{on T}^a^xa^{tion, J}^C^X-³⁸^-^06,⁷⁹⁽^A^ug^{. 3,}²⁰⁰⁶⁾^.
⁵⁸^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^C⁾^.
⁵⁹^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^D⁾^.

• The organization does not own more than 35% of the total combined voting
power of a corporation (or profits or beneficial interest in the case of a
partnership, trust, or estate) that is in the trade or business of lending money,
repairing credit, or providing debt management plan services, payment ⁶⁰
processing, and similar services.
• The organization receives no amount for providing referrals to others for debt ⁶¹
management plan services, and pays no amount to others for obtaining referrals.
In addition, organizations that are exempt under IRC § 501(c)(3) cannot solicit contributions from
current consumers and face limits on their income from debt management plan services.
Organizations exempt under IRC § 501(c)(4) must notify the IRS they are applying for
recognition as a credit counseling organization.
The new requirements in section 1220 of the Pension Protection Act are generally effective for
taxable years beginning after August 17, 2006. These requirements are only necessary in order to
have a tax-exempt status and should not affect approval of a credit counseling agency by a U.S.
trustee.
^J^eⁿⁿⁱ^fe^r^St^a^m^aⁿ
^L^e^gⁱ^s^l^at^iv^{e A}^t^torn^e^y
^j^s^ta^m^aⁿ^@^cr^s.lo^c.g^o^v^{, 7-}²⁶¹⁰

⁶⁰^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^E⁾^.
⁶¹^{26 U}^.^S.C^.^§⁵⁰¹⁽^q)⁽¹⁾⁽^F⁾^.