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Credit Counseling Before Bankruptcy

Credit Counseling Before Bankruptcy

Most people don’t realize that before you file for Chapter 7 or Chapter 13 bankruptcy, you are legally required to obtain a Credit Counseling for Bankruptcy Certificate from a non-profit institution approved by the Executive Office of U.S. Trustees and Bankruptcy Administrator. Because the goal of filing for bankruptcy is to give you a fresh start, this requirement will help you to learn about and prepare for the process. Also called Budget Briefing, the counseling session can ease your fears and enable you to move into the process with confidence and knowledge. Credit counseling is always an option to help you learn more about budgeting and debt management.

TIMEFRAME

There are two time rules that you need to remember for your credit counseling. The first is the time window prior to filing – you must complete your counseling within 180 days (6 months) of filing. If you wait longer than that to file, you will have to return to counseling for a new certificate.

The second is the length of the counseling session. In general, it takes approximately 60-90 minutes to complete your session and earn your certificate, though it may take longer given your situation and preparedness. That said, you want to be prepared by bringing all of the information required with you.

WHAT DO I NEED TO BRING?

All of your documentation is required for a successful counseling session. Be sure to have the creditors’ names and current account balances for each debt listed below. Here is a list of the information you will want to have documents proving before your session:

  • Income documentation
  • Monthly expenses
  • Information on your assets, including real estate, vehicles, bank accounts, 401ks, IRAs, etc.)
  • Unsecured debt, such as credit cards and personal loans
  • Secured debt, such as a mortgage or car loan

Once you complete your counseling session, a certificate will be prepared and mailed to you by the non-profit organization. A copy of the certificate can be sent to your attorney if you request this.

COST

While some organizations do charge around a $50 fee for their services usually to offset their costs as a non-profit, there are organizations in Nevada that offer these services for free. Be sure to do some research and see which organization might be the best fit for you. 

CREDIT COUNSELING INSTEAD OF FILING

Before you file for bankruptcy, there are other ways to attempt to get your finances under control, including credit counseling. Different from the required pre-filing counseling, this option involves working with a counselor to pay off your debts before your only option is bankruptcy. Through a debt management plan, you will learn money management techniques and consolidate your debt. This involves making one monthly payment to pay off all eligible debts, the service then divides up the payment and sends it to your creditors. There are fees involved with the process, but it definitely pays off in the long run. In addition, some counselors can even negotiate lower interest fees, reduced or split monthly payments, and adjust your due dates to balance out your money flow.

WILL IT HURT MY CREDIT?

Certain aspects of credit counseling may impact your credit score. Closing accounts to prevent accruing more debt will reduce your available credit and affect your credit utilization ratio. Depending on your situation, the debt management plan can both improve and hurt your score. Paying off accounts can help, but negotiating lower rates or settling accounts can negatively affect your score. Missing payments will also negatively affect your score, so be sure to follow through with the plan. Overall, however, these options are better than filing for bankruptcy, which will affect your credit.

Fair Fee Legal Services
8665 South Eastern Avenue, Suite 101
Las Vegas, Nevada 89123
702-703-3333