Credit Counseling Blog

There are many different meanings for the term consumer credit counseling.

In it’s simplest form, credit counselling is the process where you meet with a credit counselor and they give you advice on managing your money. They will help you deal with credit card debt, and they will explain how to improve your credit score on your credit report.

In addition, if you are planning to file for personal bankruptcy in the United States, they will conduct the mandatory credit counseling before filing bankruptcy, and the post bankruptcy filing credit counseling session. In Canada, the credit counsellor will conduct the credit counselling during the bankruptcy process.

Finally, a credit counselor will actually negotiate with your creditors on your behalf through a Debt Management Program where you make one payment each month to deal with your debts.

For more information, consult a local credit counselor.

In a press release issued today, the the National Foundation for Credit Counseling (NFCC) commented on the first year of mandatory credit counseling before filing bankruptcy as a result of Bankruptcy Reform legislation passed in 2005 that requires all debtors to receive credit counseling before they file for bankruptcy.

Some of their key findings:

– Through the first 11 months of the new law, NFCC members delivered 563,494 bankruptcy counseling and education sessions and issued 630,422 certificates.

– Consumers filing for bankruptcy were “upside-down” financially, with average unsecured debt being $11,599 greater than average annual income and the unsecured debt to income ratio has deteriorated since the April NFCC report.

– Mortgage delinquency was more prevalent for consumers filing for bankruptcy than for those receiving non-bankruptcy counseling.

– Phone and Internet counseling continue to be the predominant choice for services.

The full press release can be read here. Clearly the cost of providing the mandatory credit counseling is more expensive than originally anticipated, so further changes to the rules are possible. Stay tuned to this credit counseling Blog for updates as they become available.

If you live in the United States, you must attend a credit counseling session no earlier than 180 days before you file personal bankruptcy. Mandatory credit counseling before filing bankruptcy became law in October, 2005.

You must complete your credit counseling session, and have a certificate proving that you have completed your credit counseling session, or else the court will dismiss your bankruptcy case, and you will not receive protection from your creditors.

This credit counseling session must be completed by an approved credit counselor. If you are considering filing bankruptcy, either under Chapter 7 or Chapter 13, we suggest you contact a qualified bankruptcy attorney or credit counselor to explain to you the process in detail, so that you meet all of the requirements and understand all of your obligations before you go to court.

If you have a lot of credit card debt or other types of debt, there are two very common ways to eliminate your debt: consumer credit counseling or personal bankruptcy.

Personal bankruptcy may be an option for you, but there are a number of disadvantages to personal bankruptcy.

First, no-one wants to go bankrupt. Second, with a bankruptcy on your credit report it may be more difficult to borrow in the future. Third, there are costs associated with bankruptcy, including legal fees.

For those reasons, many people use credit counseling as a way to avoid bankruptcy. People go bankrupt to stop their creditors from calling, and to prevent legal action. Credit counseling can accomplish the same objective.

Your credit counselor will put you on a Debt Management Program where you make one payment each month to deal with your debts. Once the payment plan is in place, your creditors are no longer calling or threatening you, so credit counseling becomes a great strategy to avoid bankruptcy.

Credit counseling is an informal process where you and your credit counselor work out a repayment plan with your creditors.
Personal bankruptcy is a legal process where the court legally discharges your debts.
There are two big disadvantages to bankruptcy, as compared to credit counseling.
First, bankruptcy is a legal process.  The courts are involved, so it is recommend that you deal with a bankruptcy attorney, which can increase the cost of the process.
Second, you may lose some of your assets if you go bankrupt.  With a credit counseling debt management program, the courts are not involved, and you do not lose any of your assets, so if possible it is generally preferable to avoid bankruptcy.

As with most questions, the answer to this question depends on your personal situation.  If you have a manageable amount of debt, but just need some time to repay it, credit counseling is probably the answer for you.

On the other hand, if your creditors are taking you to court, or are in a position to garnishee your wages, or if your debts are too large to ever be paid back, personal bankruptcy may be your only option.

We suggest that you consult with a bankruptcy attorney and a credit counselor to review your options, and then based on all of the facts, decide which option is best for you.