What is Bankruptcy Counseling? A Guide to Understanding Your Options
People facing overwhelming debt often feel lost and unsure where to turn. They might be receiving relentless calls from creditors or facing the potential loss of their homes. This scary and stressful situation leaves many feeling hopeless. In times like this, you need clear information and, more importantly, support. That’s where bankruptcy counseling comes in. What is bankruptcy counseling? Essentially, it’s a lifeline designed to help you understand your options and make informed decisions about your financial future.
Bankruptcy counseling isn’t just about declaring bankruptcy. It’s about exploring all possible avenues for debt relief, including non-bankruptcy options. A credit counselor acts as your guide, helping you navigate through these challenging times.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005
Enacted in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act significantly altered the bankruptcy landscape. This act made it mandatory for individuals seeking bankruptcy protection to undergo credit counseling with a government-approved agency no more than six months before filing for bankruptcy.
Why was BAPCPA put in place? Its goal was to curb the number of individuals filing for Chapter 7 Bankruptcy. Chapter 7, often called “liquidation bankruptcy,” wipes out most debts. The aim was to steer debtors towards Chapter 13 Bankruptcy instead. Under Chapter 13, also known as a “wage earner’s plan”, debts are only discharged after a portion has been repaid.
Do You Really Need Bankruptcy Counseling?
Before the BAPCPA, seeking bankruptcy counseling was often optional, more of a suggestion than a rule. The landscape has changed. Now, pre-filing credit counseling isn’t a suggestion; it’s a legal requirement for anyone filing for bankruptcy. This rule applies to individuals seeking both Chapter 7 and Chapter 13 bankruptcy.
Failure to fulfill this requirement could lead to your case being dismissed, further complicating an already tough situation. Finding the right counselor who can help you understand concepts, such as a repayment plan, is crucial to a successful outcome. You can discuss creating a solid financial plan to present during your bankruptcy filing.
Finding the Right Bankruptcy Counselor
Choosing the right counselor for your needs is important when seeking any professional advice. It’s even more critical when dealing with a significant financial situation like filing bankruptcy. Remember, a credit counselor should work for you, not the other way around. They can also provide guidance on a debt management plan as an alternative to bankruptcy.
Choosing a Counselor: Things to Consider
If you are thinking, “I need help with my finances”, picking the right bankruptcy credit counseling agency is vital. Start by looking at those listed on the U.S. Department of Justice website. This website provides a comprehensive list of approved credit organizations.
You can also consult the DOJ’s list of approved providers of pre-filing counseling services. While it’s recommended to select a counselor on your own, it’s also okay to accept a recommendation from a bankruptcy attorney.
Both options have merits, so think about which option makes you most comfortable. For instance, InCharge Bankruptcy Solutions offers pre-filing credit counseling online, if convenience is a concern. You are also free to find an approved credit counseling agency or debtor education provider to help you understand things, like what is a credit report, and other important financial concepts.
Ultimately, choosing the right bankruptcy counselor is a crucial step on your journey to regaining financial stability. This individual, along with your attorney, will be your advocate throughout the process. So, select a counselor that not only aligns with your requirements but who also instills you with confidence in their ability.
How Much Does Credit Counseling Cost?
The cost of pre-bankruptcy credit counseling sessions varies based on the provider and your income. Many agencies use a sliding scale, making counseling accessible to everyone, even if your finances are extremely tight. Sometimes, fees are capped for low-income individuals. Check with different providers, including legal aid services, if cost is an obstacle for you.
Although some agencies may require upfront payment, many also allow payments over time. But while the average cost for bankruptcy credit counseling, often under $50, may not seem overwhelming, those dollars are precious when finances are already stretched thin. It’s why most, although not all, bankruptcy counseling services operate as non-profits, aiming to give honest and impartial advice to those truly in need.
Can Credit Counseling Be Done Online or Over the Phone?
Traditionally, bankruptcy counseling sessions happened in person. But we now live in a fast-paced world where everything, from meetings to medical appointments, happens online. Bankruptcy counseling is no different. These days, you can often complete your counseling sessions entirely from the comfort of your own home via telephone or online platforms like Zoom.
While phone and online sessions provide convenience, especially for people with disabilities or limited access to transport, be mindful. Not all credit counseling organizations offer these options, although many embrace them due to popularity. This is another good point to consider when you start looking at agencies. However, verify this with your chosen provider.
Understanding What Happens in a Credit Counseling Session
Don’t imagine walking into a sterile environment with piles of paperwork. That’s not how modern counseling works, even for a situation as serious as this. Today, think of a credit counseling session more like a conversation, especially during the first meeting.
Before you meet with the counselor, you’ll need to gather certain financial documents. These documents, along with honest answers, paint a comprehensive picture of your finances. They give your counselor deeper insight into your situation and demonstrate that you’re approaching the process seriously. During the session, the counselor may offer potential alternatives to bankruptcy based on this financial picture.
A Typical Session and Its Duration
While specifics vary, a typical counseling session typically involves reviewing your finances. You’ll talk income, expenses, assets, and debts with the counselor. Remember, there’s no need for embarrassment. Bankruptcy counselors are accustomed to dealing with individuals from all walks of life, no matter how dire the financial situation seems. Counselors are required to abide by a strict code of ethics that includes maintaining confidentiality.
So, how much time should you expect to set aside? On average, pre-bankruptcy credit counseling sessions can range from 60 to 90 minutes, depending on the complexity of your situation. Although completing your first credit counseling session may feel like checking off another to-do on your list, don’t underestimate its value. You may also want to ask about post-filing debtor education. The bankruptcy court may require that you complete a financial management course after your bankruptcy case is filed.
You might find a lot of information online that answers the question: What is bankruptcy counseling? But a credit counseling session provides more than information; it’s your opportunity to receive personalized guidance and ask any questions. This interaction makes counseling much more valuable and gives many the reassurance and support they need when struggling to make sense of such a major life decision.
FAQs about what is bankruptcy counseling
FAQ 1: What is better, credit counseling or bankruptcy?
Whether bankruptcy or credit counseling is better depends on the specifics of your financial situation and goals. Credit counseling may help you manage debt without bankruptcy. However, bankruptcy may be the only solution if you have substantial debt. Creditors may be more willing to work with you if you’ve sought credit counseling and have a management plan in place.
FAQ 2: Why would you choose Chapter 13 over Chapter 7 bankruptcy?
Chapter 13 bankruptcy allows you to keep assets like a house or car while repaying some debt over three to five years. This makes it a possible choice if you want to keep certain assets. It also allows you to catch up on missed mortgage or car payments. Your bankruptcy attorney can advise you on whether filing Chapter 13 will benefit your situation.
FAQ 3: Is debtor CC legit?
“Debtor CC” isn’t a standardized term. Legitimate credit counseling agencies must be approved by the U.S. Trustee Program. You can verify an agency’s approval on the U.S. Department of Justice website. Never work with an agency that isn’t on this list.
FAQ 4: Does a bankruptcy discharge relieve the debtor from liability for all of their debts?
No, a bankruptcy discharge doesn’t erase all debts. Student loans, child support, alimony, and some taxes are not dischargeable in bankruptcy. It’s important to discuss with your lawyer which debts might not qualify to be discharged by bankruptcy.
Conclusion
Navigating the complexities of debt is never easy, especially in today’s challenging economic climate. What is bankruptcy counseling’s role? It acts as a vital first step toward understanding your financial situation, exploring alternatives, and ultimately regaining control over your finances. Bankruptcy counseling can provide you with an accurate picture of your current financial situation so that you can make better financial decisions to achieve your long-term financial goals. This knowledge, combined with assistance from a counselor, will put you on firmer ground as you journey back to a secure future. To schedule a free consultation regarding bankruptcy, contact The Law Office of William Waldner.