What is pre-bankruptcy credit counseling?

A serious illness or significant life change can result in significant debt, and you may want to file bankruptcy to move forward financially. Depending on your situation, you may be eligible to file either Chapter 7 or Chapter 13 bankruptcy.

To complete the bankruptcy process, the Federal Trade Commission states that you must complete pre-bankruptcy credit counseling through an approved government organization. You must finish credit counseling within 180 days before you file for bankruptcy.

What counseling entails

Most pre-bankruptcy counseling sessions will evaluate your personal financial situation and help you set up a personal budget plan to rely on following bankruptcy. You may also discuss available alternatives to filing for bankruptcy. These sessions usually last anywhere from 60 to 90 minutes and they can occur over the phone, online or in person.

Choosing a credit counseling agency

The Department of Justice’s U.S. Trustee Program decides which organizations can provide credit counseling for those interested in filing bankruptcy. Before you sign up for pre-bankruptcy credit counseling, make sure you choose a counselor or educator on the U.S. Trustee Program’s list.

In addition to choosing a qualified provider of credit counseling, ask the agencies you consider what services they offer, what their fee structure is like and how they can help you with your finances. You may also want to look into what qualifications and experience their counselors have.

After you finish pre-bankruptcy credit counseling, the counselor or organization you went through must provide you with a certificate of proof. You should not have to pay an extra fee to receive this certificate.