As a result of filing bankruptcy, many consumers are required to attend credit counseling. The best method of pursuing this is to do it under Chapter 13 of the United States Bankruptcy Code. You are able to set the plan approved by the Court and then make your payments to the Federal Court Order that will stop the interest, late fees and collection calls. It is in your best interest to use the leverage of the Federal Court and avoid being taken advantage of by fraudulent credit counseling services.
You must be savvy in choosing the appropriate debt counseling service. Many companies will only wait until the bills go to collection and into default before they begin making the payments on your debt. This often destroys a consumers credit rating. You should also be savvy in choosing the appropriate debt consolidation loan.
Loans will consolidate all of your debt, but you must be sure that you will be able to repay the entire loan amount. You must understand the term and the interest rate on the loan. Some loans may require a balloon payment at the end of the loan. This is something that you should be aware of, as many lenders will entice you to take out another loan to pay the balloon payment.
Be wary of home equity loans if you are already having difficulty making ends meet. If you are unable to pay the home equity loan back, your home may be foreclosed upon to pay the debt. Due to the Texas Homestead Act, your home is safe from unsecured debts that are not exempted by the Homestead Act. Most states have an exemption that protects a certain amount of your home equity, but if you choose to pledge that amount to the loan then the Homestead exemption will no longer protect your home.
Be certain that you fully understand the program or service that you are participating in. Some services will negotiate with your creditors or make payments on the debt for you after you make a payment to them. You should understand whether the service promises to lower the amount that you owe or the interest rate that you pay. Others will promise to lower your monthly payments without changing your situation. They may also charge fees for handling your debt for you.
Some debt counselors will also only work with unsecured commercial creditors and will not help you with child support or unpaid taxes. They will actually ignore the debts that will not go away will send you money to those claims that could be discharged in bankruptcy.
There are several debt management services that are offered at a modest cost. It is often best to look for these non-profit services. For-profit or fee-based services should be approached cautiously and you will want to ensure that the service is worth what it costs.
By not choosing an appropriate service, you may find yourself in deeper debt and your credit rating may be very low at the end of the process.
