This article was written for our sponsor, Consumer Education Services Inc.
Bills that never seem to end, calls from debt collectors, interest fees stacking up — for those in extreme financial distress, the impact can feel suffocating, and oftentimes, unconquerable.
While declaring bankruptcy is never a decision to enter into lightly, it can provide much-needed relief.
“When it comes to filing for bankruptcy, people often think, ‘It’s the end of the world for me.’ But it’s really not. Bankruptcy can offer someone a second chance when their finances have collapsed,” said Rori Schoen, attorney relationship manager at Start Fresh Today, the Bankruptcy Counseling arm of Raleigh-based nonprofit credit counseling agency Consumer Education Services Inc.
While it may come as a surprise to some, bankruptcy is a heavily regulated process.
Before an individual files, they’re required by law to complete a credit counseling course and earn a certificate in advance of filing. From that point, a bankruptcy attorney will advise the consumer about the best options for their situation. If a bankruptcy petition is filed, each consumer listed on the filing must also complete a debtor education course before their debts are discharged.
“The pre-bankruptcy credit counseling course exists to help you get the full picture of your finances, understand how the bankruptcy process works, and learn what your financial obligations for repayment might be,” said Jean Elias, vice president of marketing at CESI. “This has to be completed and certified before you can file. This ensures that the attorney and the credit counseling agency have provided you with all the information you need to make a decision about the appropriateness of filing bankruptcy.”
During the pre-bankruptcy credit counseling course, consumers will learn about the various options for handling debt, including a debt management plan and the types of bankruptcy that one can file.
To determine if a debt management plan or bankruptcy is a more viable solution, the course will cover a complete budget review, including net worth and disposable income. If disposable income is deeply negative, bankruptcy is likely the appropriate option for relief.
Start Fresh Today offers a free attorney locator service to help consumers find a bankruptcy attorney near them. Most bankruptcy attorneys will offer an initial consultation free of charge.
“Seeking the help of a bankruptcy attorney is important. An attorney will help you decide which type of bankruptcy is best for you,” Schoen explained. “Trying to file for bankruptcy on your own is risky because there are so many guidelines that depend on the state or even the county in which you live. A bankruptcy attorney in your area is the best option for avoiding potential pitfalls.”
Chapter 7 is the most common form of bankruptcy and discharges all unsecured debt, including credit card debts, medical bills and personal loans. Chapter 13 works as a repayment plan, typically taking three to five years to complete.
When you file for bankruptcy, you’re not eligible to access credit for one to three years, depending on the circumstances of your filing. Once an individual is able to apply for credit again, the bankruptcy declaration will be on their file, which usually causes higher interest rates.
To prevent a similar situation from happening again, it’s best to ease back into credit use slowly.
“We always suggest re-establishing credit slowly after a bankruptcy, and the best way to do that is with a secured credit card,” Schoen explained. “Another thing that we recommended to clients is for them to put away as much in savings as they can since they’re not going to have access to credit cards during bankruptcy. If they need a car or a loan, they’re not going to have that credit to show. A lot of times, they might need a friend or family member to help them co-sign.”
Initially, the shock of declaring bankruptcy can be immobilizing, but once the dust settles, recovery can begin. CESI and Start Fresh Today offer a number of resources for clients to use before, during and after the bankruptcy process, covering topics like what to expect during the bankruptcy filing, tips for budgeting, student loans (which are not discharged by bankruptcy), rebuilding credit and more.
The aim of these resources is to not only help people throughout the bankruptcy process, but also to encourage new financial habits on the other side. For those considering bankruptcy, it’s important to remember that filing won’t ruin your life or your reputation.
“It’s not the end of the world. Financial hardship happens to good people,” Schoen said. “It’s important to understand that if you’re seeking help from reputable providers, you can walk through this process while still being treated with respect and dignity.”
This article was written for our sponsor, Consumer Education Services Inc.
