Debt Relief Through Bankruptcy Just Got Harder

As of October 17, 2005, consumers that filed bankruptcy were required to go through a government-approved credit counseling program 6 months prior to filing for bankruptcy. The purpose of this mandatory credit counseling session is to do a budget analysis to help determine whether bankruptcy was in fact their best option, or whether their debt situation could be more readily remedied by cutting spending and adequately planning. The session is supposed to last for at least 90 minutes, and it does cost a fee, although this varies from debt relief agency to debt relief agency and you can have the fee waived if you show an inability to pay it. If it is found that your situation can be easily corrected through better budgeting, the credit counselor may recommend you enroll in a debt reduction or debt management plan (DMP). In a DMP, a consumer pays a set monthly amount to the debt relief company, who in turn, distributes the monies to the consumer’s creditors. In all, the consumer pays the full debt amount plus interest to the creditors. Enrolling in a debt reduction or DMP is not required in order to file, although it may be a suitable bankruptcy alternative depending on your situation. If one elects not to avoid bankruptcy, he or she must receive a credit counseling certificate to validate that they completed the session before they can file.