Consumer Credit Counseling vs Bankruptcy
If you’re thinking seriously about filing bankruptcy, you should be aware of the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
It mandates that people who file for bankruptcy protection must have both credit
counseling and debtor education before debts will be discharged. That means people
who have never considered the pros and cons of credit counseling vs. bankruptcy,
should consider going through credit counseling fist to learn how each alternative
can affect their future.
Per the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, the Department
of Justice U.S. Trustee Program has an approved list of organizations that provide
consumer credit counseling and post-bankruptcy debtor education
services. It’s important that you choose a credit counselor from this list. These
are the only U.S. government-sanctioned programs. The only exceptions to this rule
would be for residents of Alabama and North Carolina, where court officials known
as bankruptcy administrators approve credit counseling and debtor
education service providers. Although they’re related,
consumer credit counseling and debtor education aren’t provided at the same
time.
To ensure that people who file for bankruptcy truly understand the nature of the
act they’re about to undertake, credit counseling is required before filing. It
includes a discussion of bankruptcy alternatives, an evaluation of your personal
finances and development of a personal budget plan. This counseling session takes
approximately 60 to 90 minutes and can be conducted on the phone, online or in person.
Mandatory credit counseling completion is required within 180 days
of filing bankruptcy. Participants receive a certificate of credit counseling completion,
which has to accompany the bankruptcy filing.
The debtor education portion of the requirements will be undertaken after bankruptcy
has been filed. In fact, debts aren’t discharged unless the course has been completed.
The training includes general money management strategies, plus guidelines for using
credit wisely and developing a realistic budget. As with consumer credit counseling,
a certificate of completion is provided that becomes part of the bankruptcy package.
It is important to use a credit counselor and debtor educator approved by the Department
of Justice U.S. Trustee Program or by an Alabama or North Carolina bankruptcy administrator
because only those on the list can provide the official certificates of completion
that are requires for a successful bankruptcy filing.
Providers are not allowed to charge a separate fee for these certificates but they
can charge for the consumer credit counseling and debtor education sessions. Those
fees should be approximately $50 for credit counseling and between $50 and $100
for debtor education. By law the fees must be discussed with you before the training
begins. If you can’t afford them, ask the providers to give you waivers that will
allow you access to the training at no charge.