Although enacted in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is considered the "new bankruptcy law." This is because it took great strides toward keeping individuals who didn't need to file bankruptcy from filing as a way out. Several new steps in the bankruptcy process were put in place and continue to work toward providing individuals with the solution that is best for them.
One of those steps that have been added is the credit counseling requirement. Individuals filing for bankruptcy must now undergo a 90 minute credit counseling course, which can be conducted over the telephone, before they can ever officially file for bankruptcy. The credit counseling service is government approved so that the service can submit documentation that states whether or not an individual is fit for bankruptcy.
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What to expect
When filing for bankruptcy, the individual first visits a bankruptcy attorney. That attorney then advises them that they must undergo credit counseling before the petition can be filed with the court. The course comes with a cost of not more than $50. If an individual cannot pay that $50, agencies accredited through the government are not allowed to turn an individual down.
There are several ways in which the courses are conducted: One-on-one in person, over the telephone, via the Internet, or through group courses. During the course, the credit counselor will teach you about what your options are and how they will help you avoid bankruptcy. It is important to keep in mind that bankruptcy remains on a credit report for 10 years and makes it difficult to obtain new credit. If new credit is obtained, the interest and fees are so high that a person finds him or herself paying thousands of dollars more than what they would pay otherwise.
Options that are discussed with a credit counselor include negotiating debts, debt consolidation, and simply better debt management to try and get out of debt. In other words, bankruptcy is the last resort. Bankruptcy can limit the amount of assets an individual is allowed to have and, although a person is relieved from their debt, starting over is not as easy as what it seems.
The session can seem quite grueling because the credit counselor must identify the cause of the debt, look at the person's budget, take a look at debt to income ratio, as well as expenses. The person looking to file bankruptcy must also be educated in what all of this means in order to have a more financially sound future.
After the session is over, the credit counseling agency states whether a person would benefit more from bankruptcy or from a debt management plan. If the agency believes that a person will benefit more from a debt management plan, this information is included with the bankruptcy petition. The attorney then files this plan and the petition with U.S. Bankruptcy Court.
Is it unfair?
Some feel that the credit counseling step is unfair because they are still liable for their debts if the bankruptcy court finds reason to believe the debt management plan is feasible. As a matter of fact, the court will almost always rule in favor of the debt management plan rather than cause creditors to take a loss. However, following the debt management plan results in fewer consequences for the individual in debt.
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