Bankruptcy counseling is basically credit counseling that takes place under instruction from a bankruptcy court and is required before filing and discharge. These counseling services are provided at a cost, but that cost is minimal, and on the whole, bankruptcy counseling is a painless, quick, and cheap process that can provide you with some useful advice, while also helping with your case.
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Signs you Need Bankruptcy Counseling
If you’re filing for bankruptcy, you need credit counseling. It is required to advance with the filing and lets the court know that you have educated yourself on key financial matters and have had a professional look over your financial situation.
The first required course is known as pre-filing or pre-bankruptcy, and if you don’t do this then your bankruptcy case may be dismissed by the court. The second is pre-discharge and is necessary for the completion of a Chapter 7 filing, during which most of your debts are discharged.
What is Pre-Bankruptcy Credit Counseling?
During a pre-bankruptcy counseling session, a credit counseling agency will educate you on the bankruptcy process and ensure you’re ready for everything that follows. They will discuss the pros and cons with you and then look at some of the alternatives, such as debt management and debt settlement, to make sure it is the right one.
This is important for several reasons. Firstly, bankruptcy isn’t always the best option. In fact, unless you have reached financial rock bottom, it’s one of the worst options and the credit counselor will help you find a better alternative.
Secondly, your bankruptcy case may be dismissed if you can’t prove you have exhausted all other options. Bankruptcy is not something to be taken lightly, it’s the last resort when debt management, consolidation, and settlement have failed.
Once you finish your session with a credit counseling agency you will receive a certificate of completion that remains valid for 6 months and can be added to your bankruptcy petition.
What is Pre-Discharge Counseling?
The goal of pre-discharge counseling is to prepare you for the future and ensure you don’t find yourself in the same situation months or years down the line. It focuses on income, expenses, spending, and money management, and while the idea may seem patronizing, it’s usually very helpful and many consumers learn a lot with this process.
Once it finishes, nothing more is required of the debtor and the debts should be discharged.
How to Find a Bankruptcy Counselor
A pre-discharge debtor education course and pre-filing counseling session can be booked through nonprofit credit counseling agencies that have been approved by the Department of Justice. You can use the link to search for approved agencies within your state.
Consumer credit counseling should cost you no more than $50 per session and some providers offer it for as little as $20. This is one of the few costs involved with the bankruptcy process, with other costs including legal representation and filing fees.
Debtor Education Programs and Your Credit Report
Pre-bankruptcy credit counseling will not impact your credit score or show on your credit report. A bankruptcy filing can and will. In fact, it could remain for up to 10 years, but if you have a counseling session and decide not to go through with the bankruptcy, nothing will appear on your credit report.
There are cases in which credit counseling can appear, however. Such is the case with debt management programs offered by credit counseling agencies. These often add notes to your credit report to say that you’re partaking in a credit counseling program, but while this may deter lenders, it won’t impact your score.
Advantages of Bankruptcy Counseling
Bankruptcy can be the result of a sudden and unexpected debt, such as a medical bill or a sudden loss of income. However, in many cases, it is a gradual process that occurs over many years, with the debtor burying their heads in the sand until it’s too late.
In most cases, they don’t really know how they got into that mess and they’re powerless to scramble out of it. They don’t speak with friends or family because they’re too ashamed (as discussed in our guide to the Shame of Debt) and as a result, they don’t get the help or the support they need.
Credit counseling is not only essential for when you file for bankruptcy, but it can also fill in the gaps in your financial education and tell you the things that you need to hear. It may be too late for this advice to help you now (although, in rare cases, the credit counselor can advise on a better and less drastic solution) but it will ensure that you stay on the right track after bankruptcy.
Disadvantages of Bankruptcy Counseling
The only real disadvantages of bankruptcy counseling are the cost and hassle. If you’re desperate to clear your debts and scrape together the money needed for a filing, then the extra $100 you need for a couple of sessions can feel like a fortune.
If you know everything about debt settlement, debt management, and other debt relief options, and you’ve done everything with regards to budgeting, payoff strategies, and more, counseling can feel like a complete waste of your time.
It’s like being a skilled computer technician applying for a job you desperately need and being forced to attend a lesson on how to send emails and use MS Word. But if you grit your teeth and get through it, you can file for bankruptcy any time in the next 6 months and shouldn’t face too many issues.
Summary: An Essential Step
Regardless of which bankruptcy code you file, you need to apply for a pre-filing credit counseling service. If you file for Chapter 7, you will also be tasked to undergo pre-discharge bankruptcy education. It’s important and helpful; it’s not expensive and it’s not even that long.
A credit counseling agency can be a great help when you’re struggling with your finances and if you’re ready to file for bankruptcy, there’s a good chance you’re struggling. So, sign up, place a big green tick in that box, learn some useful information, and begin the rebuilding process right away.