Many people try debt counseling or credit counseling before deciding to declare bankruptcy. There are many types of debt counseling. Some debtors take classes to learn about finances, how to make a budget, how to set reasonable spending and savings goals, and how to use credit wisely. Some debt counseling focuses on creating a repayment plan, consolidating debt, or settling debt for less than the total amount you owe. Some debt counselors are licensed agencies that provide helpful advice and assistance in getting back on track financially; others are shady, fly-by-night operations that charge high fees, make false claims about their success rates, or otherwise leave debtors worse off than they were when they first sought help.
Regardless of what type of debt counseling you try, sometimes it simply doesn't work. Even if you use a reputable agency, your creditors might not be willing to settle your debts or accept a repayment plan you can afford. Perhaps you've suffered a financial setback, such as job loss, eviction, or unexpected medical bills, that has made it impossible to keep up with your payments. There are a number of reasons why you might end up having to file bankruptcy after all.
Once you decide to file for bankruptcy, you are required to complete a credit counseling course and a debtor education course. (For more information on these requirements, see Filing for Bankruptcy: Mandatory Counseling Requirements.) If you already went through some type of debt counseling before deciding to file for bankruptcy, you may wonder whether you have to go through counseling again to file.
Under 2005 changes to the bankruptcy code, those who wish to file bankruptcy must complete two counseling requirements:
If you gave counseling a try before deciding that bankruptcy was the best option, you may be able to skip the first counseling requirement. However, you may avoid this requirement only if:
However, the second type of counseling -- debtor education -- must be completed after you file for bankruptcy. This means you can't skip the requirement, even if you already had debt counseling before you filed for bankruptcy.