Approximately four out of every five Americans grapple with crippling debt. The forms of debt are diverse, with credit card dues and healthcare costs being the most common. Declining bankruptcy may be the most effective solution to address their financial woes.
Embracing Bankruptcy: A Credit Counseling Perspective
Declaring Chapter 7 or Chapter 13 bankruptcy paves the way for a fresh financial beginning. However, it would be best if you underwent bankruptcy credit counseling first.
The counseling aims to help the courts to choose the most suitable path for you. They may find bankruptcy to be your optimum solution. Conversely, they might determine that your income is sufficient to engage in a court-mandated repayment plan.
Counseling is necessary for anyone aspiring to file for Chapter 7 or Chapter 13 bankruptcy. Even if it's apparent that your earnings are too scant for a repayment scheme, bankruptcy counseling remains compulsory.
Credit Counseling in Bankruptcy
The U.S. Trustee Program maintains a directory of government-approved bankruptcy counseling providers.
These providers can be located by state, judiciary district, U.S. territory, or commonwealth. However, the listings do not include North Carolina and Alabama.
The U.S. Trustee Program doesn't operate in North Carolina or Alabama. Inhabitants of these states need counseling from providers endorsed by their local Bankruptcy Administrators.
The official website of the United States Courts keeps a list of approved counseling providers for applicants in North Carolina and Alabama.
Evidence of Attendance
You will be given a completion certificate for attending the counseling. This certificate serves as evidence of fulfilling the requirement.
This certificate of completion has a validity period of 180 days. Consequently, you must file for bankruptcy within 180 days of receiving the certificate. If you need more than 180 days to file, you must undergo counseling again.
Additional Counseling
Before filing for bankruptcy, bankruptcy credit counseling is mandatory. However, after filing but before case closure, further counseling is required.
You are obligated by U.S. legislation to partake in pre-discharge debtor education. In most instances, bankruptcy credit counseling providers also facilitate pre-discharge debtor education.
Despite this article focusing on bankruptcy credit counseling, knowing this second requirement is vital.
The Counseling Journey: Purpose and Impact
The U.S. administration encourages individuals to resort to bankruptcy solely when all other options have been exhausted. Counseling aims to verify that there are no other feasible alternatives.
During the counseling session, it may be revealed that:
- You could adjust your budget to manage your debt.
- You could engage in a court-regulated repayment scheme.
- You could involve in debt settlement discussions with your creditors.
The outcome of your counseling will steer the course of your case.
The Roadmap for Bankruptcy Credit Counseling
A counselor will be appointed to your case, who will assist you in formulating a budget based on your current income.
Considering your budget, the counselor will identify if there are practical alternatives to bankruptcy. If such alternatives exist, the counselor will devise a strategy for you to adhere to.
The counselor is also tasked with outlining the advantages and disadvantages of all your options, including bankruptcy.
There's no compulsion for you to accept the plan. However, you must submit the plan with your documentation when filing for bankruptcy.
Selecting a Counselor
You can choose your counseling provider if you're filing bankruptcy independently without a lawyer. However, if you've engaged a lawyer, seek their suggestion for a counseling service.
Purpose for Filing
Before diving into counseling, it’s vital to understand why you’re declaring bankruptcy. It's important to consider the nature of your debt.
Certain debt remains unaffected by bankruptcy. These obligations will have to be met regardless of your case's outcome. Below are some debt types that aren't discharged by bankruptcy:
ONE
Child Support and Alimony. The bankruptcy filing doesn't eradicate obligations toward child support or alimony payments. These expenses will still need to be met.
Nonetheless, if you declare bankruptcy, the court might reduce the amount you must pay.
TWO
Student Loans. Usually, student loan debt is only accepted through bankruptcy. The exception is when the court rules that repayment would impose hardship.
To seek discharge of your student debt, you would have to initiate an adversary proceeding.
THREE
Tax Debt. The majority of tax debts aren't absolved by declaring bankruptcy. However, there are exceptions. Consult a bankruptcy attorney if your case involves tax debt.
FOUR
Government Fines and Penalties. Fines and penalties owed to federal, local, or state governments aren't eliminated by bankruptcy.
If bankruptcy isn't going to discharge your debts fully, you'll need to explore other avenues for relief. Credit counseling can assist in this regard.
The Counseling Requirement: Unpacking the Exceptions
Counseling exemption applies if your district needs an approved government counselor, though this is seldom the case with readily available online and phone counseling options.
There exist other legitimate methods to defer counseling:
- Present evidence to the court of an immediate need to file bankruptcy, leaving no time for counseling. Such circumstances involve averting a foreclosure or wage garnishment.
- Demonstrate attempts to seek counseling but failed to receive it due to the reasons previously stated.
Upon filing for bankruptcy, completing counseling within a 30-day is imperative. The court may grant an extension of 15 days upon request.
Circumstances may allow you to bypass bankruptcy credit counseling if the court establishes that:
- You couldn't attend counseling owing to a physical disability, applicable only when the phone or online counseling was unfeasible.
- You're mentally incapacitated, making counseling non-beneficial or incomprehensible.
- You're an active military member stationed in a combat zone.
Choosing Your Financial Lifeline: Chapter 7 or Chapter 13?
Chapter 7 or Chapter 13 are individuals' most common types of bankruptcy. Deciding which chapter is best for you depends on your situation.
Bankruptcy under Chapter 7
Often characterized as asset liquidation bankruptcy, Chapter 7 might entail selling your possessions to clear your debts. It's a prevalent selection among individuals needing more substantial assets and restricted income.
Bankruptcy under Chapter 13
Chapter 13, the reorganization bankruptcy, lets you retain your belongings and property.
You must adhere to a debt repayment plan mandated by the court. This plan typically spans three to five years. However, fulfilling the repayment plan might result in the forfeiture of your assets and belongings.
Progressing Further: Key Points to Keep in Mind
Obtaining credit counseling is a necessity when you're applying for Chapter 7 or Chapter 13 bankruptcy. It is essential to select a counseling service authorized by the government.
The decision to select a counseling provider lies with you. However, they can provide trusted suggestions if you have hired an attorney.
Counseling could guide you towards a preferable alternative to bankruptcy, especially if you carry debts that won't be discharged.
After counseling, you'll receive a completion certificate valid for 180 days. Ensure to apply for bankruptcy within this timeframe.
Indeed, bankruptcy can offer relief if you're under excessive debt. Yet, it's essential to bear in mind its negative impact on your credit score. This mark will stay on your credit report for 7 to 10 years post-filing. You'll need to work on credit restoration actively.
Hence, reforming your spending behaviors post-bankruptcy is critical to prevent plunging into deeper financial distress.
Monitor your expenditure rigorously. Establish a budget and initiate a savings account. As soon as it's feasible, consider making some financial investments.
Embrace the clean slate that bankruptcy provides and use it to your advantage.