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What is Bankruptcy Credit Counseling?

Debt Counseling Requirements Under the New Bankruptcy Laws

Aug 4, 2009 Asa Ghaffar

Following the reform of bankruptcy laws in 2005, bankruptcy credit counseling is now a legal requirement. Find out how this works, what is included and the cost involved.

Following the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005, bankruptcy credit counseling is now a formal requirement. Whilst this legislation was passed to prevent solvent individuals abusing the rules, it was also introduced to prevent financial difficulties from occurring again in the future. Both debt counseling and debtor education courses were introduced by the new bankruptcy law to help consumers realise the importance of having a lower income-to-debt ratio.

Requirements of the New Bankruptcy Law

Individuals who intend to file for bankruptcy must now receive bankruptcy credit counseling from a government-approved organization no more than a 180 days before filing. A debtor education course must also be completed in order to be discharged. The intention is to put individuals in a better position to prevent financial difficulties in the future.

Bankruptcy Credit Counseling Service Approval

A requirement of the new bankruptcy law is that a counseling service must be approved by the Department of Justice’s U.S. Trustee Program. All approved providers will appear on their list so if they aren't, don't use their service in order to avoid complications further down-the-line. However, in Alabama and North Carolina, bankruptcy administrators are responsible for approving organizations.

How to Select a Bankruptcy Credit Counseling Service

A range of credit counseling services should be provided.
There includes an offer of assistance to help prevent someone building excessive credit card debt in the future.
What is the position if the insolvent is unable to afford advice? Whilst the fee is normally $50, many providers offer a free service.
The use of fully accredited debt counselors.
Private information is kept confidential.
Is commission received for selling additional bankruptcy credit counseling services?

What a Bankruptcy Credit Counseling Service Includes

A counseling session will normally last 60 to 90 minutes.
It can be provided by phone, Internet or in person.
The cost for the service is $50, although it should be provided completely free of charge to those who can't afford to pay.

Bankruptcy credit counseling can help a consumer to avoid excessive credit card debt or financial difficulties happening again in the future. Current bankruptcy law dictates that a certificate of completion must be provided before a debtor can be discharged. No charge can be made by the provider for this. Don't delay in getting things under-way as the sooner things are started the better.

Sources

(November 2006). "Before you file for personal bankruptcy: Information about credit counseling and debtor education". Federal Trade Commission.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.

The copyright of the article What is Bankruptcy Credit Counseling? in Mortgages/Loans is owned by Asa Ghaffar. Permission to republish What is Bankruptcy Credit Counseling? in print or online must be granted by the author in writing.