Bankruptcy laws help U.S. citizens recover from financial hardship. This government system helps give people a second chance by mitigating debts and building a repayment plan. To do this properly, those filing for bankruptcy must first undergo a financial evaluation.
Credit counselors help people sort through their financial situation and identify opportunities for improvement. Counselors will try a few different methods of debt recovery before recommending bankruptcy. Many of these methods help people avoid filing for bankruptcy altogether.
The pre-bankruptcy evaluation process
Before filling for bankruptcy with the courts, an individual must complete an evaluation process with a credit counselor. Counselors leverage their financial expertise to study a person’s income, expenses and debt. The adviser then formulates a few plans that may help repair one’s finances without declaring bankruptcy:
- Credit counseling: Many non-profit credit counselors offer counseling services on a sliding scale, so even those with money troubles can find affordable assistance. These professionals help consolidate credit card debt, reduce payments, and look for opportunities to minimize one’s interest rate and save more.
- Strict budgeting: Some dire financial situations can benefit from a new look at one’s budget. Most people file bankruptcy because an unexpected situation spiraled out of control, like losing a job followed by hospitalization from a car accident. Many people can fix their finances by reigning in spending, cutting costs and maybe even getting a temporary second job.
- Settling debt: Credit card companies want people to pay their bills. If one of their debtors files for bankruptcy, the process may void those debts. Debt settlement or debt management programs reduce credit card payments to manageable payments.
After exploring the above options, a financial counselor may end up recommending Chapter 7 or Chapter 13 bankruptcy. Each type has different requirements to qualify. Those with fewer assets will get the most from Chapter 7.
A lawyer can help file
People who file for bankruptcy find more success with the services of a lawyer. A local attorney familiar with bankruptcy law can help locate reputable credit counselors, work with credit card companies on settlements and oversee the bankruptcy filing process.