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The purpose of pre-bankruptcy credit counseling

A common perception that many in Nashville may have is that personal bankruptcy simply offers one who has been irresponsible in their financial decision-making a way to avoid the consequences of their actions. The fact that most who seek bankruptcy protection file under Chapter 7 may seem to reinforce this fact. Indeed, according to information compiled by the American Bankruptcy Institute, 127,545 of the 200,159 non-business bankruptcy filings from the second quarter of the 2018 fiscal year were Chapter 7 cases. Yet a closer examination of Chapter 7 eligibility requirements reveals that there are several steps one must take before the opportunity to file under this Chapter even becomes an option. 

One of those is to go through credit counseling. The website for the Administrative Office of the U.S. Courts shows that one seeking Chapter 7 bankruptcy protection must first complete credit counseling offered by an approved agency. Some might say that this is just a formality, yet the court does indeed consider the findings of a credit counselor when reviewing one's bankruptcy petition. 

Oftentimes, a credit counselor will create a debt repayment plan that details how a debtor might settle their liabilities through their own efforts over time. There will certainly be cases where a comparison of one's assets and liabilities in this setting will reveal the need to seek bankruptcy protection. However, there might also be scenarios where it is shown that one might indeed be able to settle their debts through a structured repayment plan. 

A debtor is not legally obligated to follow the repayment plan created by a credit counseling agency. However, if after reviewing such a plan bankruptcy court officials believe that repayment is possible, they might suggest that a person seek a Chapter 13 bankruptcy rather than a Chapter 7. 

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Rothschild & Ausbrooks, PLLC
1222 16th Avenue South, Suite 12
Nashville, TN 37212

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