Bankruptcy unfortunately has a stigma attached to it that scares off people that it could truly benefit from taking advantage of the process. Many people mistakenly believe that filing for bankruptcy is somehow wrong or means they’re some kind of financial failure, which couldn’t be further from the truth.
In many cases, people file bankruptcy, because life has thrown them an unexpected curve that they simply can’t overcome financially, such as divorce, job loss or an illness that leaves them with massive medical debt. Bankruptcy is a tool for such people to legally regain control of their financial future. However, it’s not as simple as just showing up to court one day and signing some paperwork. The process is complex and requires several steps, such as bankruptcy credit counseling.
What Is Bankruptcy Credit Counseling, and How Does It Work?
As a part of the process of filing bankruptcy, a person must acquire two certificates. The first certificate is for pre-filing bankruptcy credit counseling and the other is for pre-discharge credit counseling education course. The certificates must be issued by a consumer credit counseling agency that has been approved by the Executive Office for US Trustees.
The pre-filing credit counseling course takes around an hour and costs $20 to $50. It’s meant to educate people filing for bankruptcy about what they are getting themselves into, including:
- Reviewing their financial situation, such as household budget, income and a list of debt
- A discussion about bankruptcy alternatives, such as direct negotiation with creditors, debt consolidation or even not taking action if you’re “judgment proof”
- An explanation of the consequences of bankruptcy, such as the fact that it will remain on your credit report for as much as 10 years, it could be tough to get loans and you may have to pay higher interest rates for credit cards and loans
The pre-discharge credit counseling course, which lasts around two hours. While the agencies that provide these courses are not issued a standard curriculum, the topics of the courses are reviewed by the Justice Department ensure they remain in compliance. The pre-discharge course is meant to educate people filing bankruptcy on financial responsibility going forward, including proper budgeting, credit reports and scores, consumer protection laws and how to rebuild their credit. The course can be completed online in many cases and costs around $50.