Tuesday, March 21, 2006

Credit Counseling Before Bankruptcy!

Bankruptcy Law REQUIRES Government - Approved Credit Counseling Prior to Filing!
If you are considering filing for bankruptcy, you must now receive Government Approved Credit Counseling within six months before you file. Individual States list government-approved credit counseling firms at www.usdoj.gov/ust

After Hurricane Katrina, credit counseling requirement for consumers who are filing for bankruptcy in Louisiana and the Southern District of Mississippi have been temporarily waived.

How Counseling Works and What it Costs
Credit counseling organizations advise consumers on how to develop a budget to manage money and debts and often offer free educational materials and workshops. The counseling may take place in person, online or by phone. Sessions usually last 90 minutes and must include an analysis. Some counseling firms charge for this service (usually around $50). Anyone who cannot afford to pay may ask to have the fee waived.

If after counseling, you are still intending to file for bankruptcy, you must obtain a specific certificate as proof--which you then take to bankruptcy court when you file. Some firms charge an additional certificate fee…so it pays to ask up front what the total fees may be in your case….be sure you get the right certificate before filing.

Debt Management Plans

If a firm recommends you negotiate a debt management plan (DMP) you will be asked to deposit money into an account with the firm. This seems to me a potential conflict of interest. I believe it is within your rights as a consumer to shop around for different solutions at this point. Your chosen counseling firm will advise on ho they will collect funds from you and use this account to pay your debts down over time. Sometimes creditors agree to lower interest rates or to waive fees if you are in a DMP plan.

Be careful here…not all firms are government approved and some have been known to take advantage of consumers by extracting higher fees and allowing you to lapse into a form of involuntary bankruptcy that does long term harm to your FICO score. Some firms have also been known to approach people with good credit and offer to help ‘settle debts for pennies on the dollar’…thereby ruining their FICO scores.

If you are going the Debt Management Plan route, you can rest assured no lender will want to work with you until you are out of this program. Some lenders offer ‘bankruptcy buyouts’ to help you settle the plans sooner--assuming you have real estate assets to leverage. Be sure you are working with reputable lenders and carefully consider which route will serve you best in the long run. A Certified Public Accountant may be your best resource. A good accountant could review the recommendations of a counseling firm as a second opinion.

Ask Your Credit Counselor (as advised by Federal Trade Commission)
· What services are offered?
· Will you help me develop a plan for avoiding problems in the future?
· What are your fees?
· What if I can’t afford to pay your fees?
· What are the qualifications of your counselors? Are they accredited or certified by an outside organization? What training do they receive?
· What do you do to keep information about me (including my address, phone number, and financial information) confidential and secure?
· How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or make a contribution to your organization?
· Suppose I want only the credit counseling services and budget analysis that are required before I can file for bankruptcy relief. How much will these services cost? What services will your company provide?
· How will I know that I have the correct certificate I need to file for bankruptcy?
· Does the certificate cost extra? If so, how much?

Federal Trade Commission resources:
To learn more about bankruptcy law
For information about choosing a credit counselor, visit

As always, buyer beware--and compare before you commit!

Wishing you every credit sanity!

© 2006 susan templeton