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Bankruptcy Counseling - Questions & Answers

Below are some commonly asked questions with regards to the BAPCA that took place October 17, 2005.

Q: With regard to financial counseling and education, what will change as a result of the new bankruptcy law?

A: For the first time, financial counseling and education will be mandated by the Bankruptcy Code and will benefit consumers facing serious economic problems. Prior to filing for bankruptcy, individuals will be required to receive a briefing from an approved nonprofit budget and credit counseling agency. Prior to completing the bankruptcy process and receiving a discharge, individuals will be required to complete a course on personal financial management.

Q: What are the benefits of the pre-filing counseling session?

A: For most individuals, whether they should file for bankruptcy is one of the most serious financial decisions they can make. Consequently, that decision should be made only after knowing what the bankruptcy process entails, the consequences of filing for bankruptcy, and the available alternatives to filing for bankruptcy. The pre-filing counseling session will enable consumers to fully understand the potential advantages, disadvantages of, and alternatives to, declaring bankruptcy before taking action.

The NFCC believes that helping consumers to fully understand the implications of bankruptcy and the possible alternatives will enable them to make an informed decision about whether bankruptcy is the best option for their specific financial circumstances.

Q: What will take place during the pre-filing counseling session?

A: On and after October 17 2005, all individuals filing for bankruptcy under Chapter 7 or Chapter 13, will be required to participate in an pre-bankruptcy filing counseling session with an approved nonprofit budget and credit counseling agency within six months of filing. The agency providing the session must be approved by the Executive Office for U.S. Trustees (EOUST). (Agencies located in North Carolina or Alabama must be approved by the local Bankruptcy Administrator). Consumers who receive pre-filing counseling with an NFCC member agency can expect:

  • Estimated length: A counseling session of approximately 90 minutes. Content: The session will include an overview of the bankruptcy process; a discussion of possible alternatives to bankruptcy, including their advantages and disadvantages; and a personalized budget analysis. The session also will include a discussion of the circumstances that led the consumer into financial difficulty.
  • Format: Counseling can be face-to-face, over the phone or via Internet.
  • Certificate: Consumers will receive a certificate indicating that they completed the counseling session. Should they decide to file for bankruptcy, they will have to include the certificate in the filing with their bankruptcy petition.
Q: What will occur during the pre-discharge financial education course?

A: Before a bankruptcy is finalized and debts can be discharged, consumers will be required to complete a pre-discharge financial education course from an EOUST (or Bankruptcy Administrator)-approved agency. The NFCC believes that the pre-discharge financial management educational course will provide more Americans than ever before with the financial know-how they need to manage their money, keep their personal finances in order and reduce the chance of future financial problems.

The following is an overview of what to expect from the pre-discharge education:

  • Estimated course length: 2 hours
  • Content: NFCC members approved to provide the pre-discharge financial education course will address financial literacy issues that will arm individuals with the tools to prevent future financial problems. Among key topics: rebuilding finances after bankruptcy, developing and following a budget, understanding and using credit, "predatory lending" and identity theft.
  • Format: Face-to-face, over the phone or via Internet.
  • Certificate of completion - Consumers will be given a certificate verifying completion of the course, and will have to file that certificate with the Bankruptcy Court in order to have their debts discharged.
Q: How can consumers considering bankruptcy select a reputable credit counseling agency?

A: Consumers intending to file for bankruptcy or waiting for debts to be discharged after filing will need to select an organization approved by the EOUST (or Bankruptcy Administrator) to provide such services. Visit www.nfcc.org for a list of NFCC members with EOUST approval, and for general tips on how to select a reputable credit counseling agency.

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