Purpose

• Often, people who file for bankruptcy file again later. This results in enormous losses for lenders. It also costs taxpayers money, because courts must meet the administrative costs of handling the bankruptcy. The purpose of bankruptcy counseling thus is to modify your financial habits and make you aware of the ramifications bankruptcy has. Ideally, armed with new financial methods and bankruptcy information, your likelihood of filing decreases.
  
  

When Counseling Is Necessary

• Counseling about bankruptcy is useful to all consumers. However, counseling becomes more necessary when you have trouble managing your debts or budget, or if you have trouble negotiating payment plans with lenders.
  
  

Types of Bankruptcy

• The primary types of bankruptcy include Chapter 13 and Chapter 7. With Chapter 13, you make a payment plan to handle your debt with future earnings, rather than through liquidation of assets. With Chapter 7, you liquidate all your assets that are not exempt and use the money to pay off your lenders. Because each type of bankruptcy operates differently and has specific regulations attached, the advice you receive in bankruptcy counseling depends on the type of bankruptcy you file.
  
  

Changes in Bankruptcy Law

• Due to changes in bankruptcy law enacted in 2005, you must enroll in bankruptcy counseling at least six months prior to filing. Additionally, there are more restrictions against Chapter 13 bankruptcy. This counseling must be from a government-approved agency.
  
  

Considerations

• Although you must seek financial counseling from an approved government agency if you're going to file for bankruptcy, many independent organizations provide similar counseling. Not all of these companies are legitimate and, in fact, some actually prey on those with debt problems. Good agencies do not charge for their information or use of other financial resources. They operate entirely as nonprofits, considering the issuance of free bankruptcy help an asset to the overall health of the economy. As the Federal Trade Commission suggests, always check if the agency you are considering using is licensed or has a good rating through the Attorney General, your local consumer protection agency and the Better Business Bureau.