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Required credit counseling may provide alternatives to bankruptcy, including debt consolidation
By Sam Craine on Feb 4th, 2010
Given financial difficulties, some consumers may end up considering bankruptcy, though they should keep in mind rules highlighted by the Federal Trade Commission.
According to the commission, rules put forward by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 require that people seek the assistance of a consumer credit counseling agency approved by the government. They must also complete a course on debt before what they owe is discharged.
Consumers looking to bankruptcy must prove they have sought the advice of a consumer credit counseling service within 180 days of their filing.
"A pre-bankruptcy counseling session with an approved credit counseling organization should include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan," the FTC said.
One alternative that a counseling agency may recommend is a debt management plan, which helps consumers consolidate the amount of money they owe.
Through debt consolidation, consumers may be able to pay off their debts at a lower interest rate while also paying them off in a shorter amount of time. Doing so may help them avoid taking the hit to their credit score that could come from bankruptcy.
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