How Does Credit Counseling Work before Bankruptcy?

Before actually being allowed to pursue bankruptcy, individuals must meet several eligibility requirements according to recent renovations in the American bankruptcy codes. These new laws, including a means test and mandatory credit counseling, were implemented to prevent abuse of the bankruptcy system by debtors.

Pre-bankruptcy credit counseling is required before you file bankruptcy under Chapter 13 or Chapter 7. An attorney can guide you to the federally approved credit counseling agencies, which are denoted by the United States Trustee’s Office as those approved to offer pre-bankruptcy counseling to consumers. Before you file file bankruptcy, this mandatory bankruptcy counseling will be able to indicate whether filing is actually in your best financial interest, or whether negotiated repayment plans are a more feasible economic alternative.

What Occurs during the Pre-Bankruptcy Counseling Session?

During the bankruptcy credit counseling session, a complete analysis of all outstanding debt obligations, the terms of those obligations, and your personal income levels are all assessed, as well as considerations for continuing expenses for living and other unique needs.

Regardless of the enormity of outstanding debts or the completely unrealistic nature of potential repayment, debtors planning for bankruptcy still must attend the mandatory bankruptcy credit counseling session before obtaining approval to file for either Chapter 7 or Chapter 13. When entering bankruptcy court, a certified document must be presented denoting that the credit counseling has been attended at one of the approved agencies, as well as the suggested repayment plan recommended by the agency.

Getting Legal Help for Bankruptcy

Assuming the judge permits your bankruptcy filing to proceed, there is still mandatory credit counseling that will occur later in the process. The idea of the final counseling session, which occurs near or shortly before the approval of bankruptcy filing, is to guide consumers to better financial habits and prevent future financial crisis.

Without actively attending this mandatory credit counseling session, the courts will not allow discharge of any outstanding debts, and in turn, effectively prevent a bankruptcy filing.

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