Required credit and debt counseling: What bankruptcy filers need to know.

Given that many Americans are now facing record-high medical expenses, huge credit card debt and thousands of dollars in student loans, interest in bankruptcy is high. Most people know the basics of how bankruptcy works: you file for bankruptcy, follow the dictates of your plan and then your eligible debts are discharged. What most people don't know, however, is that the United States Bankruptcy Code requires two simple forms of financial counseling - pre-filing credit counseling and pre-discharge debtor education.

What is credit counseling?

Pre-bankruptcy credit counseling is a required class for all bankruptcies filed after October 2005. It is of very little value, but Congress does require the course prior to filing for protection. Credit counseling companies are not attorneys, so they cannot offer legal advice and are of little value to a debtor who is in a bad financial situation.

It is important for those contemplating bankruptcy to realize that not only must they complete credit counseling before filing and providing their attorney with the certificate indicating they have completed the class. It is very simple, however, and can be completed online for little cost.

What is pre-discharge debtor education?

Pre-discharge debtor education is designed to keep a bankruptcy filer's mind focused on long-term financial change. A pre-discharge education session focuses on the importance of creating (and sticking to) a budget, only using credit when necessary, and carefully managing money.

This simple session is the last proverbial "hoop" that a filer must jump through before their debts are discharged by the bankruptcy court. The timing of this session - immediately before the discharge of debts - ensures that filers are put in the best possible position to enact changes that will keep the positive financial momentum going. Proof of the completion of this session is required before the bankruptcy court will carry out the discharge of your debts.

Learning more

Of course, the bankruptcy filing itself also provides important information to filers, particularly about the eligibility of discharge for certain types of debts, the difference between unsecured debt and secured debt, how the bankruptcy court prioritizes creditors to receive payment and the consequences of a filing on the filer's credit rating.

Do you want more information about bankruptcy-related credit and debt education? Have questions about how bankruptcy could help you? Interested in finding out more about bankruptcy? If so, seek the advice from one of our experienced bankruptcy attorneys to learn more about available debt management options.