A person filing for bankruptcy has to first fulfill certain requirements before he is allowed to go forward. One of these requirements is that he must first take a credit counseling course. There are certain rules that the credit counseling agency must follow.
The first of these rules is that they are required to let you know where they receive their operating funds. This mean that, for example, if they are a non-profit institution that takes in monetary contributions from either public or private donors they must apprise you of that fact. On the other hand, if their money is made from clients like you with whom they are providing counseling services to, they must provide that information to you as well. The intent is to make sure that the bankruptcy applicant is receiving unbiased information and that there is no hidden motives behind the agency offering the counseling services.
In addition, the credit counseling agency is supposed to let you know what effect their recommended suggestions will have on your credit rating. This will enable you to decide whether to take or ignore their advice. For instance, the agency may make a recommendation that you settle your debts with certain creditors. If you do so, they have to also tell you the possible effects to your credit score once you settle the debt. Ideally you will be given viable financial alternatives to filing for bankruptcy. You will be give the suggestion verbally. But the company will also give you a written plan which you will present to the judge at the bankruptcy hearing where he will make the decision as to if you are eligible to file for bankruptcy.
Any counselors that the agency uses must not receive any type of monetary kickback from the services that the counseling agency performs. In other words, if Joe is a counselor with the agency, he cannot recommend that the person sign up for a debt management program in which he has a financial interest. Unfortunately, however, there is no restriction which prevents Joe from recommending a service provided by the counseling agency itself. This means that in certain circumstances, there can very well be conflicts of interest in the solutions that they provide.
When your counseling is complete, you can then have your court date. This is where the presiding judge will make the determination as to whether you meet the eligibility requirements in your state to file for the bankruptcy. To help him make his decision, the judge will take the suggestions of the counseling agency into consideration. For example, if the plan provided by the counseling agency offers a realistic plan in which you can repay your creditors, the judge could deny your request for bankruptcy and suggest that you instead follow the recommendations to pay off your creditors. And you will have to abide with whatever decision he arrives at.
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