Bankruptcy Counseling FAQ
How do I choose a bankruptcy agency?
Bankruptcy is a major undertaking, so it’s important that you work with an agency that can help guide you through the process with empathy and expertise. When choosing a bankruptcy counseling and education provider consumers should:
- Verify that the bankruptcy counseling agency of choice is approved by the Executive Office for U.S. Trustees and equipped to deliver the necessary counseling and education. A list of approved agencies can be found on the U.S. Department of Justice website.
- Check that the organization has the capacity to help better their clients’ overall financial situation through continuing counseling and financial education.
- Consider the organization’s commitment to quality. Make sure the organization is a member of the National Foundation for Credit Counseling or the Consumer Federation of America. Verify that they are accredited by an independent third party organization, such as the Council on Accreditation (COA).
How much does the bankruptcy counseling session cost?
The fee for the pre-filing bankruptcy counseling session by one of our professional credit counselors is $50 for single or joint filers. MMI will waive the bankruptcy pre-filing counseling fee for consumers whose household income is equal to or less than 150 percent of the estimated poverty threshold for their applicable family size as published in the current Federal Poverty Levels Guidelines.
- Pre-filing counseling: $50
- Pre-discharge education: $50
- Pre-discharge video: $50
Does the bankruptcy counseling certificate expire?
Bankruptcy regulations require consumers to receive counseling within 180 days of filing. If you choose to file more than 180 days past the date of your initial bankruptcy counseling session, you will need to schedule another appointment to talk with a trained bankruptcy counselor.
Do I need an attorney to file bankruptcy?
Consumers filing for bankruptcy protection can file on their own; however, bankruptcy laws can be quite complicated. A trusted attorney may prove to be helpful. To find a bankruptcy attorney, consumers can ask someone they trust to recommend a good attorney or use the Attorney Locator resource at Bankruptcy.org to find a trusted attorney in your area. Take the time to make sure the attorney you choose is properly qualified and a good match. Filing bankruptcy can be an emotional event so it is important for filers to have a good relationship with their attorney.
Why do I have to take an education course after I filed?
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 includes two provisions mandating financial counseling and education: Before filing for bankruptcy, consumers are required to have a briefing on the alternatives to bankruptcy; and before receiving a bankruptcy discharge a debtor is required to complete “an instructional course concerning personal financial management.” These provisions were included to provide debtors in bankruptcy with the skills and tools needed to avoid future financial problems.
How long is the bankruptcy education course?
This comprehensive course is a mandate from the EOUST (Executive Office for U.S. Trustees) and covers a variety of financial and budgeting topics. Please plan to dedicate a minimum of 120 minutes to complete the bankruptcy education course and note that a certificate will only be issued after this requirement has been met.
How long does it take to recover from bankruptcy?
A notation that you filed for bankruptcy will remain on your credit report for seven to ten years, depending on the chapter you file. The most obvious ramification of filing bankruptcy is the difficulty you may have obtaining new credit with affordable repayment terms. Fortunately, you don’t have to wait seven to ten years to reestablish a strong financial foundation. After filing bankruptcy, consumers should adhere to this advice:
- Take some time. While it may be tempting to obtain new credit quickly, be sure to carefully consider your options. Avoid short-term, high interest loans if at all possible.
- Maintain or obtain adequate insurance. In addition to required insurances, such as auto coverage and homeowners insurance, health insurance is a must. In fact, research has shown that a large percentage of bankruptcy filers state medical expenses as the cause of their financial problems.
- Establish a savings cushion. Three to six months’ living expenses in an accessible savings account may make the difference between a minor financial setback and a serious financial problem.
- Improve creditworthiness. One safe way for consumers to reestablish good credit is to get a secured credit card. With a secured card, consumers make a deposit into a savings account with a bank to secure a line of credit. The credit card company then issues a card and a line of credit for at least the amount of the deposit.
For more information, on how to recover from bankruptcy, consumers can visit Bankruptcy.org.
How much does the bankruptcy education course cost?
The fee for participating in a pre-discharge bankruptcy education course is $50 for single or joint filers. MMI will waive the bankruptcy pre-discharge course fee for debtors whose household income is equal to or less than 150 percent of the estimated poverty threshold for their applicable family size as published in the current Federal Poverty Levels Guidelines.
How do I obtain limited credit after bankruptcy?
There are plenty of lenders out there that will finance someone with a bankruptcy. A quick search on the Internet will result in hundreds of potential lenders. Keep in mind that lenders make credit decisions based on a number of factors, not just whether or not you’ve filed for bankruptcy.
You may want to begin building a good credit rating by starting small. A secured credit card is easy to obtain and can help you to establish yourself as credit worthy. Be sure to read and understand all of the terms and conditions of any new loan.
What specific percentage of my income should go toward housing, clothing, entertainment, etc?
One of our favorite guidelines is the 70 / 20 / 10 formula.
That means of your net income, no more than 70 percent should go towards living expenses. These expenses are for such items as house payment, food, utilities, etc. No more than 20 percent of your income should go to your creditors. These credit payments would include vehicle payments and credit card payments. The remaining 10 percent of your income should go towards savings, investments and to cover emergency expenses. If you follow this 70 / 20 / 10 formula, it will help you practice sound financial money management.
How do I get credit after bankruptcy settlement?
A Chapter 13 bankruptcy will continue to negatively impact your “credit worthiness” for up to seven years. Lenders try to judge “creditworthiness” when determining whether or not to loan someone money.
The good news is that your credit report is improving each month as your bankruptcy ages and you continue to use credit wisely.
For now, consider applying for a secured credit card, they are often easier to obtain. Be sure to make all payments on time and as agreed!
How do I remove bankruptcy from my credit history?
To get the bankruptcy off your credit history, all you have to do is wait. The Fair Credit Reporting Act dictates that a bankruptcy stay on your credit report for up to ten years. When the ten years is up, the bankruptcy notation should come off the report automatically. To verify that this has been done, you may want to pull a copy of your credit report. MMI recommends that you review a copy of your report annually anyway.
There is no legitimate way to remove a bankruptcy notation ahead of schedule. Be wary of any company that claims to be able to remove negative marks from your credit report - if those marks are accurate, they will continue to show for 7-10 years.
Can you explain the difference between a Chapter 7 and Chapter 13 bankruptcy?
Chapter 7 bankruptcy is designed for debtors in financial difficulty that do not have the ability to pay their existing debts. A trustee takes possession of all your property but you may claim certain property as exempt from seizure under governing law. The trustee then liquidates your non-exempt property to pay your creditors according to priorities of the Bankruptcy Code. The purpose of filing Chapter 7 is to obtain discharge of your existing debts, however some debts are not dischargeable under the law.
A Chapter 13 bankruptcy is designed for individuals with regular income who are temporarily unable to pay their debts but would like to pay them in installments over a period of time. You file a plan with the court to repay your creditors all or part of the money you owe them, using your future earnings. The court must approve your repayment plan before it can take effect. Under Chapter 13, unlike Chapter 7, you may keep your property, both exempt and non-exempt, as long as you continue to make payments under the plan. After completion of payments under your plan, your included debts are discharged.
My credit reports show a status of discharged. How do I get my credit history to be more favorable?
A Chapter 13 bankruptcy stays on your report for seven years. If the notation remains beyond this time, it is an error and should be removed. To correct this error, you can file dispute forms with the credit reporting agencies. You should have received the forms along with your reports.
If you filed for Chapter 7 bankruptcy, the notation stays on your credit report for up to ten years. In this case, you’ll have to wait.
Either way, to improve your credit history, keep paying your bills on time and as agreed. The longer you go without adding any new negative marks, the better your score will eventually be.
How long does a bankruptcy notation remain on my report?
A Chapter 7 bankruptcy notation will remain on your report for 10 years, starting from the filing date. A Chapter 13 notation would remain for seven years from the filing date.
How do I get a certificate to complete the bankruptcy process?
Completing the bankruptcy process requires two certificates - pre-filing certificate and a pre-discharge certificate. The pre-filing certificate is obtained by completing a pre-filing bankruptcy counseling session. The pre-discharge certification is obtained by completing a pre-discharge education course. Both are available to begin any time at BankruptcyCertificate.com.
Is it better to file bankruptcy or use a debt consolidation service?
It is wise to research all of your options. We recommend that you speak with a trained credit counselor that can help you fully assess your financial situation. It may be possible to establish a debt repayment plan that is agreeable to both you and the lender. If a repayment plan is not possible, our agency also provides the necessary counseling to allow you to move forward with the bankruptcy process.
I'm in debt after divorce and considering filing bankruptcy after being "awarded" the bulk of our credit card debt. Do you have any suggestions?
Unfortunately, this is a rather common problem. In fact, divorce is one of the top reasons consumers seek assistance from MMI. We recommend that you meet with a trained credit counselor. During your counseling session, your counselor will review your overall financial situation, discuss possible solutions and make recommendations for you to consider.
Can military personnel wages be garnished?
Effective April 3, 1994, wages of the military may be garnished. A judgment must be obtained in the state or county in which the debtor works and service must be made on the payroll office in the location where the debtor works. The only exception to this garnishment might be if the service member is stationed in a state that prohibits garnishment.
Is there anything I can do to avoid going bankrupt? I have heard people say "just call the bank and tell them to come and get whatever the item is, that you cannot make the payments any more."
If you let anything (i.e.: car, boat, house, etc.) go back as a repossession, the lender will sell the item to the highest bidder and apply the proceeds of the sale to the balance owed on the item. If the sale price is not sufficient to pay the balance due, there will be a "deficiency balance" remaining. You will be legally obligated to pay this deficiency balance. If you do not pay this balance, the creditor can possibly sue you in an effort to try and collect from you.
The lender can also report this repossession to the credit reporting agencies. This derogatory notation will remain on your credit bureau file for 7 years.
Every situation is unique, and if you feel as though you can’t successfully manage all of your bills and debt obligations, consider discussing your situation with a trained credit counseling. The counseling is free and should help you get an objective viewpoint on your finances and your best course of action.