Today, individuals who are seeking relief under Chapter 7 or Chapter 13 of the Bankruptcy Code are required to complete credit counseling with an agency approved by the U.S. Trustee's office. The purpose of pre-bankruptcy credit counseling is to determine if the debtor qualifies for bankruptcy or whether an informal payment plan is a better option.
In any event, credit counseling is necessary even if a payment plan is not feasible. Moreover, counseling must be completed within the 180-day period before the bankruptcy filing. Also, a certification of completion must be filed with the bankruptcy court within 15 days of the filing date. If the required course is not completed the bankruptcy petition will be dismissed.
The fact that participation in credit counseling is mandatory does that mean the debtor must agree with the counselor's recommendations, which are based on an assessment of the debtor's financial situation. In addition to informal payment plan, a credit counselor can also recommend a formal repayment plan under Chapter 13. This plan must be filed along with the other bankruptcy documents. On the other hand, the counselor may find that a Chapter 7 filing is the only option. Ultimately, the courts are inclined to agree with the agency's recommendations.
It is important to note that this is not the only counseling bankruptcy filers must agree to. If the bankruptcy petition is approved, it is also necessary to complete an approved course on consumer debt, before the debts are discharged. The goal of this course is to educate debtors about finances, including matters such as how to develop a budget, manage money, and use credit responsibly.
In the end, the decision to file for bankruptcy is difficult and one that requires serious consideration. While filing for personal bankruptcy can help a distressed debtor make a fresh start or work out a payment plan, bankruptcy can cause long lasting damage to his or her credit worthiness. Regardless, it is best to speak to an experienced bankruptcy attorney who can help explore all the options.