Credit counseling became a mandatory part of the pre-bankruptcy process in 2005, when Congress passed a law reforming parts of the bankruptcy code. Specifically, the mandatory counseling rule was put in place because it was suspected that people who were actually able to pay their debts were turning to bankruptcy instead. The mandatory credit counseling step, in this sense, is like a third-party assessment of a debtor’s financial situation. The credit counseling firm will either sign off on the debtor’s need for bankruptcy proceedings, or else recommend the debtor pay down their debt outside of the process.
How Credit Counseling Helps
These services provide detailed financial analysis for the debtor seeking protection. The service analyzes the debtor’s whole financial picture, and comes to a determination of whether or not the debtor has the financial wherewithal to pay down the debt in a repayment plan or if bankruptcy is the best option. In addition, most if not all credit counseling firms offer debtors financial management tips to be implemented going forward, regardless of whether they recommend repayment or bankruptcy.
Counseling must be completed no more than six months prior to filing for bankruptcy. Typically the fees for credit counseling services are no more than $50. There is a legal requirement that credit counseling firms provide graduated payment options for those with demonstrable financial difficulty. Consult a Hurst bankruptcy lawyer to determine where to find a reputable counseling service; the complete list of court-approved firms can also be found among the resources of the bankruptcy court.