When the bankruptcy laws changed in 2005, the credit counseling agencies changed from helping set up a budget and financial planning to be a mandated step before your bankruptcy can be completed.
Not all credit and debt counseling agencies are legitimate. Some will take your payments and leave you worse off than before you signed up with the agency. You can find a list of approved counseling agencies at U.S. Trustee for bankruptcy filers. (usdoj.gov/ust.) You can get counseling in person, over the internet, or in some cases over the phone.
The new bankruptcy laws require would-be filers to complete a credit counseling course prior to filing for bankruptcy. You must have a steady income if you want an agency to help you pay your debt. The counselor will then contact your creditors and let them know you are entering into a payment plan.
You will pay one monthly sum to the credit agency, and then they will, in turn, pay your creditors. This is usually referred to as a Debt Management Program (DMP). Some creditors will reduce interest or waive the minimum payment fees, or late payments dropped. This isn’t always the case, though.
If you miss a payment on your plan, a creditor can stop the agreement. You will also be required to pay your unsecured debt like credit cards, and medical bills in full. With chapter 13 bankruptcy, you will only be required to pay a small portion of your unsecured debt if any. In Chapter 7, you usually have all your unsecured debt discharged.
If you have more questions about credit counseling or would like more information on bankruptcy, contact a Dallas bankruptcy attorney.