Bankruptcy is a legal process that helps individuals and businesses who are drowning in debt to clear their financial burdens and make a new start. However, before you can file for bankruptcy, you must undergo credit counseling.
If you do not complete a session of counseling prior to your bankruptcy petition, a judge will not authorize your bankruptcy. Going through counseling assures both you and the legal system that bankruptcy is a good fit for your situation.
The definition of pre-filing counseling
According to Nerdwallet, bankruptcy counseling is a mandatory educational program designed to provide you with financial knowledge and resources. It helps you make informed decisions about how to deal with your debt.
During bankruptcy counseling, you will work with a certified credit counseling agency to assess your finances, budgeting, and debt management. The goal is to help you explore alternatives to bankruptcy. Possible options include debt consolidation or negotiation with creditors.
How credit counseling works
During the counseling session, you will review your financial situation with a credit counselor. They will assess your income, expenses and debts. In addition, expect to discuss your budget and explore strategies for managing your financial problems.
The counselor will provide you with information on bankruptcy and its consequences, as well as alternative options. You will receive a certificate upon completing the counseling, which is a requirement if you proceed with bankruptcy.
The necessity of counseling
Bankruptcy counseling is mandatory because it helps ensure that individuals have considered all their options before pursuing bankruptcy. You might find another solution to your debt woes, making bankruptcy unnecessary. A court will also accept that you have explored alternatives prior to going through with bankruptcy.
The Nerdwallet explains that the average cost for credit counseling is anywhere from $25 to $50, so counseling is affordable for many. Completing this step should help prepare you for bankruptcy if you feel this is the best option to restore your financial health.
