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.

Reader’s of this credit counseling blog know about consumer credit counseling as a way to deal with your debts, and most people now understand that you must have mandatory credit counseling before filing bankruptcy.

Many people may not realize, however, that since September 1, 2006 residents of certain areas of Chicago, Illinois are required to have credit counseling before they are allowed to purchase a house. The law, called the Illinois Predatory Lending Database, is intended to curb predatory lending by educating borrowers before they enter into a mortgage agreement.

Before buying a home, credit counseling must be obtained from federal Department of Housing and Urban Development-certified counselors for people looking to buy homes in 10 Chicago ZIP codes who have low credit scores or whose income meets other criteria. The law only applies in certain zip codes that the state says have a high proportion of “predatory loans” and higher than average foreclosure rates.

Since most would agree that credit education is sorely lacking in North America, it could be argued that everyone should be forced to attend credit counseling sessions. However, a lawsuit is now underway, arguing that this law unfairly targets minorities. You can read more about it in today’s edition of the Chicago Tribune.

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.