What Really Happens When You File For Bankruptcy

Posted by Nick Niesen on October 29th, 2010

Having a hard time paying your bills? Do they seem like they just keep adding up? A lot of people in this situation think that filing for bankruptcy is the easy way out. In all reality, bankruptcy should be your very last resort. Most people do not understand the long term effects of this course of action they are also unaware that there is a very extensive process that happens before and after you file for bankruptcy.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 states that people who plan to file for bankruptcy protection are now required to receive counseling from an agency that is government approved within a six month period before filing. After filing bankruptcy a debtors education course must be completed. The Department of Justice has a U.S Trustee Program wherein only counselors and educators that appear on the program's list can counsel you. By law the U.S. Trustees Program cannot operate in Alabama and North Carolina because they have what are referred to as Bankruptcy Administrators.

The credit counseling and debtor education might not take place at the same time. But it is necessary to complete both for those who are filing for bankruptcy. The counseling must take place before filing, a certificate of credit counseling completion must be attained when filing for bankruptcy. The debtor education program normally takes place after the filing.

The counseling session consists of an evaluation of personal financial situations, a discussion of alternatives to bankruptcy, and a budget plan. The session should normally take about an hour, and the filer has the option of taking the session in person, on line, or over the phone. For those that cannot afford to pay for the counseling the organization is required to provide their services free of charge. But for those who can afford to pay the fee will be about $50 depending on location. Once the counseling is complete you are given a certificate as proof you have taken the course.

It is up to you to decide what organization you will use for credit counseling. When you are calling around please make sure you ask some of the following questions. What services to you offer? What are you fees? What if I can't afford them? What qualifications do your counselors have? Will you help me develop a plan for avoiding problems in the future. If you ask at least half of these questions, you will have a good idea about the organization and your decision making will be much easier.

The educational courses will consist of similar information as the counseling sessions, budgeting, using credit wisely. Like the counseling sessions you have a number of options on how you can take the educational courses, in person, over the phone or on line. These courses last longer at about two hours and the fee is anywhere between $50 to $100. You can seek a waiver if you are unable to pay. You should also receive a certificate as proof that you have taken the course.