You find yourself in massive debt and thinking of filing for bankruptcy. But before you can do that, there is one necessary step to take—credit counseling. What is it? What does it have to do with your debt and bankruptcy? To fully understand why credit counseling matters, here’s what you have to know:
What is credit counseling?
Credit counseling is a short meeting with a certified counselor from a non-profit agency to discuss your options. This meeting usually lasts an hour and can be done online or in person. Its goal is to assess whether bankruptcy is the best solution for you, or if you have other workable alternatives.
What should you expect during the meeting?
During this time, the counselor will review your financial situation, including your earnings, expenses and debts. Depending on your situation, your councilor might not readily suggest filing for bankruptcy. Instead, they might suggest an alternative payment plan. No matter what option you take, credit counseling will provide you with more knowledge and a certificate of completion.
Is credit counseling mandatory?
Federal law requires you to undergo credit counseling first if you plan to file for Chapter 7 or Chapter 13 bankruptcy. You must do this within six months before filing for bankruptcy. After completion, you will receive a certificate as proof. You will then attach it to your bankruptcy filing. Otherwise, the court will likely reject it.
How does credit counseling help you?
While the counselor will not advise you to file for bankruptcy immediately, it is also not a means to discourage you from filing. Instead, you get all the information you need to make the right choice. Some individuals sometimes realize during counseling that a restructured payment plan works well for them.
A step towards freedom
Credit counseling might look like another step you have to comply with. Instead, it is an essential step towards financial freedom. Armed with the knowledge your counselor has given, you become confident tackling your debt problem.
That said, credit counseling is just one part of the process. If you are unsure about the next steps, a bankruptcy attorney can help you. They can advise what type of bankruptcy to file, documents to fill out and the filing deadlines.