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Credit Counseling Before Bankruptcy

Before you file, Ethel advises you should consider credit counseling first.

Getting completely overextended with credit card debt is overwhelming. Financial stress runs high and all you can think about is your bills and how you’ll make ends meet this month. Filing for bankruptcy may be at the top of your mind. Pulling the plug and getting a fresh start, regardless of the credit damage, can be beneficial.

But before you take that step, you should take a moment to consider some alternatives, especially if you’ve already filed for bankruptcy once. Before you go down that road again, it’s worth your time to explore other options, such as credit counseling. Here’s a story of one credit user facing a similar situation and what she learned along the way.

Despite the warnings, Ethel couldn’t stay away from credit…

Since the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, all consumers who file for bankruptcy are required to complete pre-bankruptcy counseling and take a post-filer debtor education course.

The goal is to help you learn from the mistakes that led to your filing, so you can avoid financial hardship in the future. And, of course, one of the things that they tell you is to avoid credit cards. Easy, right? Just avoid them and you’ll be fine.

I was told not to get caught up in credit cards again, but I did anyway. I thought I needed all those cards.

So, even though Ethel completed her first filing in 2008, by 2016 she was back in debt and struggling again to make ends meet.

A second bankruptcy was an option, but not one that she wanted to take…

The BAPCPA requires a certain amount of time to pass between a first filing and a second one. For example, if you file for Chapter 7 and want to file for Chapter 7 again, then eight years must pass in between.

While Ethel was able to file again, she wasn’t sure she wanted to go through the process again. Filing for bankruptcy is stressful. It’s also invasive to have the courts diving into your financial life. So, when Ethel saw an ad for Consolidated Credit, she decided it was worth a call.

“I heard about Consolidated Credit on a television ad and the internet,” Ethel explains. “I was skeptical, thinking that the payments would be more than I could afford. It took me a couple of months to make the call. I was out of work and on disability, so I figured I may not qualify for the program.”

Ethel was surprised to learn she could afford the payments on disability…

Ethel finally decided that it couldn’t hurt to just go ahead and call to speak with a representative. She got on the phone and spoke one-on-one with a certified credit counselor. She gave the counselor a list of cards that she wanted to enroll in the program.

“I was relieved that I qualified,” Ethel says, “and payments were affordable.”

Ethel enrolled in a debt management program. The program consolidated her debts into one monthly payment. The credit counseling team worked with her creditors to minimize the interest charges applied to her balances and stop penalties, so it would be easier to pay off her debt.

Each month, Ethel made one lower monthly payment to Consolidated Credit, which they distributed to her creditors on her behalf. She started making progress on paying down her debt.

Ethel had a hiccup along the way, but the team was there to help…

As she went through the program, the credit counseling team helped her set a budget.

“I was told how to save while I was on the program,” Ethel recalls. “It wasn’t much, but I was putting back $25 a week in savings. I did, but I had to use what I had saved for some things that happened.”

A few emergencies put Ethel back into a financial bind and she wasn’t sure she could continue. Since the program is completely voluntary, her counselor told her she was free to leave at any time. The payments she’d made thus far would still be credited to her accounts. However, her interest rates and the previous penalties she’d faced would likely be reinstated.

“I fell behind and had to restart the program,” Ethel says. “I was thinking that I couldn’t do it, but I found that I could if I stuck with it. It took two and a half years to pay off the plan.”

When she finally finished, Ethel had paid off her credit card debt in full, avoiding the 7- to 10-year credit damage caused by filing for bankruptcy of settling her debt for less than she owed.

Along the way, Ethel dedicated herself to building better financial habits…

Consolidated Credit also provided her with a range of financial education resources and financial coaching. And unlike the bankruptcy requirements, all the education was free. It was also personalized.

This was the best program of financial learning I ever experienced.

Anytime Ethel had a question or was having trouble with her budget, she says the team was there to help.

“They are caring people and willing to help in your situation,” she says. “They are only a phone call away.”

Ethel is happy to report that she’s learned how to save and how to not get back into debt. Instead of telling her to just stay away from credit cards, they showed her how to have a healthy relationship with credit.

“I have three cards now,” she admits. “But when I use them, I am careful not to purchase more than I can pay off in the next statement.”

Ethel recommends credit counseling to anyone considering bankruptcy…

“Don’t burden yourselves if you don’t have to,” she says. “I am a real person who took the step and was glad I did. Making the last payment is like a taste of heaven on earth.”

You will feel so light without being burdened down by your debt. Life will become manageable again.

If you’re struggling to get out of debt, talk to a certified credit counselor.

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