W. Travis Garrison Bankruptcy Law Blog on Lawyers.com

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 was passed in an effort to make it more difficult for people to file bankruptcy.  The BAPCPA made credit counseling an eligibility requirement for filing bankruptcy.  An individual must use an approved, non-profit credit counseling agency and complete the credit counseling within 180 days before filing bankruptcy.  At the very least, the counseling must consist of one session, either face-to-face, by phone, or over the internet.

What is credit counseling?

Credit counseling educates debtors how to avoid debt by paying off credit card balances and buying items with cash.  It also provides a Debt Management Plan (DPM) as an alternative to bankruptcy.

Advantages of credit counseling over bankruptcy

§  A reputable, non-profit credit counseling agency may be able to help you negotiate a DPM with creditors to reduce interest rates.

§  You can consolidate payments into one monthly payment.

§  By making a number of on-time payments through a DPM, you may be able to bring your account current through re-aging which re-categorizes a previously delinquent account as current.  Even though previous payment defaults are still noted on a credit report, so is the current status.

§  You do not have bankruptcy on your credit report which lasts for up to 10 years.

§  A DPM only stays on a credit report for seven years.

Advantages of bankruptcy over credit counseling

§  Credit counseling agencies are not all created equal.  The IRS denied non-profit status to approximately 30 credit counseling agencies that are responsible for more than 50 percent of credit counseling industry revenue.  Such credit counseling agencies (http://en.wikipedia.org/wiki/Credit_counseling) receive compensation from creditors, which may make them more beholden to creditors than the consumers they serve.

§  While bankruptcy harms crediting ratings, participation in a DPM may also result in greater difficulty obtaining loans and credit cards based on added risk factors.

§  Certain debts are usually not included in a DPM, such as back mortgage payments, car payments, child support and back due taxes.  However, Chapter 13 bankruptcy in Ohio includes all these debts in the repayment plan.

§  In bankruptcy, the lawyer has a legal responsibility to serve the client's best interests and protect the client's rights.  A credit counselor does not have the same legal obligation.

Some Ohio bankruptcy lawyers help people avoid bankruptcy by negotiating with creditors for a reduced amount, payable in a lump sum.

Cupps & Garrison, LLC35 East Gay Street, Suite 402Columbus, OH 43215
Phone: 614-441-8603