Credit Counseling Before Bankruptcy

: Reese Baker & Associates

  Filed under: Money Management

Before an individual can file for bankruptcy, they are now required to complete credit counseling. The purpose of this is to weigh your options of dealing with your debt, including repayment plans and bankruptcy.

Since the credit counseling industry was mainly the idea of lenders, and those lenders still provide financial support for credit counseling firms, it should be no surprise they would lead you towards a payment plan.

Choosing a Credit Counselor

Many good credit counseling agencies provide the services and benefits they advertise. The benefits include;

  • The collection calls will stop for the typical five years it takes to make the payments.
  • The lender often agrees to remove late payment notifications from your credit report and may even reduce the interest rate.
  • Because your debt is lumped into one single payment, it is easier to make one payment rather than multiple payments to many creditors.
  • The single payment is often lower then what you were paying previously.

Some counseling agencies have been known to provide bias advice. One such slant may be from credit card companies that would like to persuade you to continue making payments, and not to file bankruptcy. They may tell you all the drawbacks to filing bankruptcy, but neglect to mention the disadvantages of a repayment plan.

Many counseling agencies collect fees on a commission basis, so you are encouraged to pay on your
credit cards under a debt management plan. They neglect to tell you that restructuring your credit card payments can negatively affect your credit report and scores if you fall behind on your payment.

You do not want to work with an agency that offers a debt management program putting you on a repayment program and gets paid a monthly fee for handling the payments. These agencies have a strong financial incentive to keep you on a payment program.

Among complaints filed from consumers, credit counseling agencies have charged high up-front fees, failure to deliver promised financial counseling services, and failure to provide implied benefits. Some consumers after completing their debt management program discovered their credit score was lower than when they started.

Debtor Education

The second type of counseling required before filing for bankruptcy is Debtor Education. You will find a list of approved credit counseling and debtor education agencies on the U.S. Trustee’s Web Site.

Where to Get Help

Sometimes you realize that making large payments to a credit counseling agency for a lengthy period is just not the right path for you. Consider contacting a qualified McAllen Texas bankruptcy attorney. Find out what all your options are to get you relief from your overwhelming debt.