Knowing what to expect during credit counseling while filing for Chapter 7 Bankruptcy will greatly alleviate the amount of stress on the filing individual throughout the process. Credit counseling is a process offered to consumers in financial debt as a means to both educate them on the ins and outs of how to establish good credit and to create a plan targeted at relieving their debt in a safe, timely and effective manner. The desired outcome of credit counseling is not simply knowledge, however, but a plan that will help consumers emerge from debt with their credit vastly improved. This plan is commonly referred to as a "debt management plan" and involves negotiating with creditors.
The first thing a credit counselor does is gather facts and information by discussing with consumers what event or series of circumstances brought them to credit counseling in the first place. They will also seek to understand a consumer's financial goals for the future and explain how consumers may avoid repeating the same mistakes that led them to incur massive, unmanageable debt. The information gathered during this initial stage is considered confidential and should not be reported to any credit bureaus. Consumers should always double check with their counselor to ensure that this is their official policy.
At this point, the counselor will turn to specifics. They will discuss with the consumer their individual income and expenses and then help create a viable monthly budget that works for the consumer. Often, this involves instructing the consumer on where they may reduce or altogether eliminate certain expenses in order to free up funds for debt repayment.
Now comes the hard part. Once a reasonable budget has been worked out, the counselor will go through the consumer's complete record of debt. This involves a thorough review of all creditors past and present, current balances on any loans or credit cards, and the repayment status of all accounts. The counselor will then arrive at the figure determining how much a consumer may pay to creditors at regular intervals by subtracting overall expenses from the consumer's net dependable income.
At this point, the counselor begins to make suggestions to the consumer on how best to go about making the debt reduction plan an effective and sustained reality. This part of the process will be very different for each individual consumer. The counselor will review a number of goals, paying particular attention to increasing the consumer's income, reducing or eliminating monthly expenses, refinancing or selling major assets, and whether or not the consumer should approach creditors to see if they can establish a debt management plan or simply reduce terms of repayment (i.e. interest rates, minimum monthly charges).
It is important to note that in some instances, consumers are able to have a large percentage (sometimes up to 50%) of their debt forgiven by their creditors if they know that the consumer is actively seeking to repay their debt through a debt management plan. Though the difficult financial choices to be made will vary according to the individual needs of consumers, the goal of all credit counseling is the same: to show consumers that they can control debt, rather than their debt controlling them.