Bankruptcy and Credit Counseling

During the postwar boom of the 1950s, Americans experienced more buying power and an increase in lending. During this time, The National Foundation for Credit Counseling was developed to provide financial education and credit counseling to consumers.

The credit counseling industry was brought about by the lenders, to encourage consumers to use credit wisely and pay their debts. Credit agencies still provide financial support and incentives to the counseling services to get consumers on payment plans. You must take two credit counseling courses during your bankruptcy.

DMP

Debt Management Plans or DMPs are set up so consumers will pay back their debt over time. The benefit to the consumer is that you will no longer receive collection calls. The advantage to the credit counseling agency is the percentages paid by the lenders and fees the consumer pays to have their money handled.

The typical repayment period is five years; at the end of this time, your credit report may be better than when you started the plan. Another benefit to the consumer is that the debt will be repaid in a single monthly payment, sometimes lower than paying individually on the debts.

Fees

Some credit counseling agencies will discourage you from filing bankruptcy. They will not receive money from the lenders if you choose bankruptcy over DMPs.

• Lenders are paying the credit counseling agencies a fee to collect and distribute payments from consumers.
• Credit counseling agencies can collect upfront fees from consumers.
• Nonprofit credit organizations can ask for consumer donations to help with the cost. Some of these expenses can be high, and it is often difficult to stop making continual ‘voluntary’ payments.

You will need to take a credit counseling course before you can complete your bankruptcy case. You can find reputable agencies on the U.S. Trustee website. An ethical agency will discuss all of your options, including bankruptcy. When you file bankruptcy, all of your qualifying debt will be eliminated in as little as three to six months with a Chapter 7 bankruptcy.

For more information on bankruptcy and the required credit counseling, you must receive before getting a discharge, contact a Houston bankruptcy attorney.