Debtors must take a course in credit counseling before filing bankruptcy
You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.
Most approved agencies charge between $30-$50. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you cannot afford the fee, you should ask the agency to provide the counseling free of charge – or at a reduced fee.
If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. Plus, being an “approved” agency for bankruptcy counseling doesn’t guarantee that the agency is actually any good. It’s also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.
Some of the approved agencies offer debt management plans (also called “DMPs”). A DMP is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a DMP as a way of avoiding bankruptcy whether it makes sense for you or not. You should not consider a DMP if making the monthly payment will mean you will not have enough money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities. It’s important to keep in mind these important points:
- Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you;
- If you sign up for a DMP that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case); and
- There are approved agencies for bankruptcy counseling that do not offer DMPs.
It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor who cannot give you legal advice, an attorney will provide counseling on whether bankruptcy is the best option for you. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. If you’re worried about the cost of bankruptcy, many attorneys offer payment plans. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program.
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