Few things in life are of greater consequence to one’s physical and emotional well-being than financial hardship. Many individuals facing harassment from creditors have enough of an income to begin allocating toward their debts, but not enough to keep up and prevent the seizure of their assets. Many debtors turn to bankruptcy to find a fresh beginning.
Under these circumstances, bankruptcy is a viable option and can provide this future. After all, it affords debtors a shield. Creditors are court-ordered to cease any and all efforts to collect a debt during the filing process, and once the application has been approved, the applicant is presented a clean slate. No more calls, no more threats...everything stops. This allows you to start from scratch, using monthly bills to begin rebuilding your credit for a brighter future.
Consumer Credit Counseling Is Key for a Debt-Free Future
Bankruptcy does not guarantee a debt-free future. You are responsible from turning any poor habits around in order for the effects of a bankruptcy to live on. This is where consumer credit counseling comes into play.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 mandates that all bankruptcy applicants participate in a pre-filing session with an approved credit counseling agency. Counselors work with applicants to develop not only a comprehensive understanding of their financial problems, but ways to avoid them in the future. The objective is to empower consumers to secure their financial future against debt collectors post-bankruptcy, and to implement financial practices which keep them debt-free.
Here are some of the ways consumer credit counseling can help you get and stay on your feet:
Emotional Support:
Financial responsibility is one of the most important life skills everyone needs. If you do end up filing bankruptcy, consumer credit counseling will help you learn from any financial mistakes that caused you to fall behind. During this pre-filing session you will also be given tools and techniques to use that can help you become more financially responsible. It is very important to gain control of your finances after your debts are discharged, because it is very easy to fall right back into old habits.
Budgeting:
Many individuals make enough income to cover their daily cost of living, but fail to allocate this money appropriately. Many debtors cite this as the reason they are in financial distress. Consumer credit counselors can work with you to help you draft a budget for your monthly cost of living, scrutinizing each expenditure to ensure all your needs are met. Work with your consumer credit counselor to cut out any unnecessary expenditures before you draft your budget. Any leftover money can be allocated as needed.
Preemptive Crisis Management:
It is a lot easier to accrue debt than it is to pay it back. This is because in order to allocate money to debt resolution, you need to have money on reserve. Otherwise, you’ll be trading one debt for the next, lowering your credit score as you allocate money you don’t have to a debt you can’t eliminate. It can become a vicious circle.
Consumer credit counselors can help you work a contingency fund into your budget to prevent this from happening. After your income is allocated to necessary expenses, you should have money left over at the end of the month. (If you don’t, try to find a way to supplement your income so you have some breathing room.) Leftover money should be added to the contingency fund each month until you have a significant amount of money saved. If you run into any financial troubles, loss of income, unexpected medical expenses or other unbudgeted costs, this fund will be able to support you through this period and keep your credit score clean and you out of collections.
Build Your Credit
Consumer credit counseling will help you find ways to rebuild your credit after you file bankruptcy. Your inability to pay your debts will cause your credit score to suffer, so you’ll need to give it some TLC when your debts are discharged and your slate is wiped clean. A credit counselor can advise you on how to begin rebuilding your credit, one step at a time.
Learn more about your bankruptcy options by downloading our free Debt Solutions 101 eBook.
