Credit Counseling And Debtor Education - A desideratum For Filing Personal Bankruptcy

In the decades following the promulgation of the United States of America’s bankruptcy law about a century ago, a good number of Americans numbering into the millions had filed for personal bankruptcy. Majority of these numbers had done so during the last thirty years. A number of factors are thought to be responsible for the reason such a large number had taken the route to personal bankruptcy. Prominent among these is what some expert described as lawyers’ ads to “get out of debt quickly and easily”, the desire to have a “fresh start”. Nonetheless, that was to change quickly. At least, the proceedings and processes leading to bankruptcy would need some adjustments and fine tunings.

The new bankruptcy law (Bankruptcy Abuse Prevention and Consumer Protection Act 2005) brought about a new phase in bankruptcy filings in the United States. The law is intended at making sure that creditors do not suffer unnecessary lost, due to consumer declaring bankruptcy when really they can manage to pay off their debts. On the other hand consumers are protected. In a situation, where a consumer could not genuinely pay his debt, he could file for personal bankruptcy in order to avoid incessant harassments by creditors and their agents. Thus, before a debt could be discharged through personal bankruptcy, two major steps are prerequisites.

Credit Counseling.
The department of justice United States trustee program approves some organization to provide mandatory credit counseling for consumers considering personal bankruptcy. The trustee program maintains the list of all organizations approves to provide this important service. Therefore, all organization whose name does not appear on the list cannot provide a legal and valid credit counseling to consumers. A valid counseling must be sought within 180 days before filing.

What aspect should a credit counseling class cover? To be effective and achieve its intended purpose of preventing abuse and protecting consumer, a credit counseling session must give consideration to: An objective evaluation of the consumer’s financial situations; The consumer’s budget plan; Available alternatives to bankruptcy.

Having discussed what should be covered during a credit counseling session; the next question that naturally comes to mind is what is and who bears the cost of credit counseling? Well, the approved organizations are out to do business. Thus, they collect fees from consumers. However, in an extremely difficult financial situation, the consumer should discuss it first with the counselor before counseling. This helps the counselor to consider the possibility of fee waiver before the session begins. The cost of counseling though depends on the organizations involve, is generally about $50. After the counseling, a certificate of proof is issued to the consumer. The certificate is generated through a centrally coordinated automated system to prevent fraudulent issuance of certificate. The certificate is filed along bankruptcy showing that the consumer is qualified to file for personal bankruptcy.

Debtor Education
A compulsory debtor education must be completed before discharge. Thus, it is expected that a consumer will take debtor education soon after filing for personal bankruptcy. This helps to intimate the consumer about life after personal bankruptcy, the situations he is likely to face after discharging debt through bankruptcy and the best way to prevent going bankrupt again. To achieve its purpose a debtor education session must help the consumer to appreciate the following points:
How to achieve effective debt management
How to make prudent use of credit cards
What items should not be bought on credit
How to develop a functional budget
The importance of a savings account

The fee for a debtor education session ranges from $50 to $100. Still, a consumer who could no afford to pay could get a waiver by discussing with the organization’s educators before the session begins.

As noted above, consumer education serves to protect consumers. To this end, a debtor is encouraged to make good use of the opportunity that is presented by asking all relevant questions about personal bankruptcy. Take note of points use plan to use. This is necessary because many of us have come to realize that our bankruptcy is not a function of insufficient pay, but some little mistake we made. Therefore a good debtor education can go a long way to prevent future occurrence.

As with the credit counseling program, the United States trustee program appoints some organizations to provide this service. Visit the U.S trustee program website to find the list of approved organizations in your area. A certificate indicating that you have completed the debtor education program is issued at the end of the session. This must be presented to the court. Subsequently, the debt could be discharged.