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Education + bankruptcy relief = future financial stability

Bankruptcy is as much about learning how to manage debt going forward as it is about dealing with the pile of bills. When we are deeply in debt, we want relief from the headaches, the creditor calls and the past due notices. We also want a fresh start -- we want that clean slate so we can plan ahead after spending so much time and energy reacting.

Some of us know exactly what to do, and some of us have lost our confidence. The U.S. Bankruptcy Code actually insists that everyone understand how to manage credit and know what the next steps are once the bankruptcy is taken care of.

A debtor must complete credit counseling before filing a bankruptcy petition. The debtor must choose an organization that is approved by the U.S. Trustee Program for the district in which the bankruptcy will be filed.

The session itself is fairly straightforward and generally lasts between 60 and 90 minutes. The debtor and the counselor review the debtor's financial situation and prepare a budget plan. The counselor also discusses alternatives to bankruptcy.

All of this can take place over the phone, in person or online. If a debtor cannot afford to pay, the session is free of charge. If payment is not a hardship, the fee is generally about $50. The counseling organization should explain all of this up front.

At the end of the session, the counselor issues a certificate of completion. The organization is prohibited from charging an additional fee for the certificate.

After the debtor has filed for bankruptcy, but prior to the discharge of all debts, he must complete a debt education course. The process -- using an approved organization, the possibility of having the fee waived, obtaining a certificate of completion -- is much the same as the credit counseling process.

During the session, the debtor and the counselor again discuss budgeting. Clearly, developing a realistic budget and learning how to stick to it are the first steps toward financial recovery. The counselor also talks about managing money generally and, of course, using credit wisely.

Working with a debt relief and bankruptcy attorney can help make sense of the education requirements as well as the filing procedure. An attorney is most interested in finding a good solution to a client's debt problems and helping that client get back on his feet as quickly as possible.

Source: Federal Trade Commission, "Filing for Bankruptcy: What to Know," accessed Aug. 19, 2014

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