Credit Counseling for Bankruptcy

Credit counseling, also known as debt counseling, is a procedure that tutors consumers on how to avoid incurring debts that cannot be repaid. In other words it is a process by which a customer is made knowledgeable about ways to avoid bankruptcy. Hence a proper credit counseling for bankruptcy always comes in handy for someone who is planning to file for bankruptcy.

Bankruptcy is a complicated legal process regulated by federal laws as well as some state regulations. Hence it is hard to file for bankruptcy without the help of an experienced bankruptcy attorney. To add to such difficulties for filing bankruptcy, new laws have made it quite a hassle for individuals to qualify for filing bankruptcy. Filing for bankruptcy may give you immediate relief from your creditors, because in most cases you will be granted an automatic stay. The automatic stay requires by law that your creditors stop trying to collect the money that you owe them.

But having clear knowledge about your finances is a crucial first step in maintaining financial health or making it better. Credit counseling for bankruptcy explores the possibility of repaying debts outside of bankruptcy and educates the debtor about credit, budgeting, and financial management. Credit counseling service is offered to individuals with excessive debts as a substitute to bankruptcy.

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made credit counseling for bankruptcy mandatory for consumer debtors filing for bankruptcy in the United States. For this, during the 180-day period preceding the filing of bankruptcy, the debtor must go through a program with an approved nonprofit budget and credit-counseling agency. Such a program may include, but is not limited to, one counseling session conducted by phone or over the Internet. In addition, a post-filing debtor education credit counseling session is necessary in order to conclude the bankruptcy process and to have your debts discharged.

Credit counseling for bankruptcy often entails negotiating with creditors to establish a debt management program (DMP) for a consumer. DMPs, set up by credit counselors, usually offer reduced payments, fees and interest rates to the client.

One of the first agencies dealing in credit counseling for bankruptcy was created in 1951 when credit grantors set up "The National Foundation for Credit Counseling", or NFCC. Their stated objective was to promote financial literacy and help consumers avoid bankruptcy.

A credit-counseling agency normally obtains most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to think that credit counseling agencies are simply a collection-wing of the creditors.

Credit counseling for bankruptcy is also an emergent industry elsewhere in the world as well, both for profit-making debt management companies and charities such as Christians Against Poverty and the Consumer Credit Counseling Service, Britain's largest debt advice charity.

Most of us long for having enough money so that we can live comfortably without having to sacrifice the quality or balance of our lives. No matter what your feelings are about money, dealing with it is an inevitable aspect of adult life. Consequently any knowledge that helps us manage and generate revenue efficiently is always a welcome proposition. A professional Credit Counseling for bankruptcy service is the right step towards this financial freedom when you are in trouble.