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What Are Credit Counseling and Debt Management Classes?

Credit Counseling is a new concept in the bankruptcy law. Good lawyers have been telling their clients for years to go to reputable credit counselors when they are telling potential debtors of their various bankruptcy and non-bankruptcy options. There are those credit counselors who have been around for years who help people repay or restructure their debts and negotiate with their creditors for them, for a fee. The more reputable ones also analyze people’s financial situation and talk about the causes of, effects of and solutions to being buried in debt. Going to one of these entities was usually a prelude to filing bankruptcy, but often a solution to financial problems that allowed people to avoid filing bankruptcy.hbcce_logo

However, the new law dictated that no one can file a bankruptcy in the United States of America without first obtaining a certificate proving that he has underdone credit counseling. Ostensibly, this is to educate the population and stem the tide of bankruptcies being filed. That is great in theory.

In reality, my guess is that most of the companies started in response to the new law were created for one purpose: to sell certificates that my clients must have in order to be eligible to file bankruptcy. I am thankful for them, as the ones I have dealt with are easy to work with.

However, usually I refer people to these credit counselors who send them right back to me. I do not know the statistics regarding this, but I suspect that very few people going to a credit counselor to get the certificate do not file bankruptcy after meeting with their credit counselor. This is especially true when people who qualify for filing bankruptcy have run out of options and decided to file for bankruptcy and are then sent to credit counselors by the bankruptcy attorney. Thus, the new bankruptcy law made this requirement to stop bankruptcies and all it really is is an obstacle which must be overcome by investing 2 hours of a debtor’s time and about $50 before he may file bankruptcy.

Basically, most of the companies require an in-person 1.5 hour interview and a review of a booklet and budget; or an on-line video viewing session that is interactive so that you can input your budget information. At the end of both, you pay your money and get your certificate and take it to your bankruptcy attorney.

For the in-person sessions, I used to recommend Consumer Credit Counseling, but there are NO IN PERSON credit counselors in the York County, SC area. For the internet session, I am a registered user with Hummingbird Credit Counseling. The link to both of these groups’ websites is in the Links section of this website.

Do your homework before you pick a credit counselor because, for you to be able to get the certificate, you need to go to one that is approved by the US Trustee or Bankruptcy Administrator. Both of the two I recommended are. Also, beware of credit counseling in the non-bankruptcy context, as the industry is fraught with fraud and abuse right now, so much so that Congress has investigated it and the IRS revoked the tax-exempt status of every group it examined in 2006, I believe.

Debt Management Class is also a requirement of the new bankruptcy law. It is more useful. The ones I have seen are basically on-line video presentations teaching budgeting skills, how to choose between different debt products and other basic financial bits of information regarding which we all could use a refresher and of which many of us have never heard. The idea is to help people from falling into financial traps again, which is a practical and useful concept.

In SC if you do not take the class and sign a form required in SC that has to be filed with the court, or if you do not take the class in NC, your case will close without a discharge.

It only take 3+/- hours on line and costs about $19 per debtor (using Hummingbird). If the case closes WITHOUT a discharge, then the debtor will have to pay $260 for another court filing fee to reopen the case, pay his attorney for doing the motion to reopen, take the class and ask for his discharge.

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