If you’re going through bankruptcy, you may be wondering why financial counseling is required. According to the new bankruptcy laws that were passed in 2005, all bankruptcy filers are required to undergo mandatory credit & financial counseling. Gaining the knowledge you need to make successful financial decisions is an important step in making sure that you will not file for bankruptcy again. Lawmakers do not want people to abuse the bankruptcy system and financial counseling is one way to make people stop and think about their behavior and financial decisions.

Financial counseling makes you more aware of what past mistakes you made, and how to make better choices in the future. Counseling also gives you a better understanding of budgeting, what your expenses are, and proper credit management. Credit counseling agencies can help you establish a plan for repayment and overcome your past financial history by focusing on positive changes that you can make to eliminate debt and start building assets. The new bankruptcy laws are designed to prevent debtors from abusing the bankruptcy system as a way to avoid their creditors in an unethical manner.

While the credit counseling requirement may seem like a burden, it is really quite minimal. In fact, the credit counseling session does not have to be conducted in person. It can be conducted over the telephone or online over the internet. Credit counseling firms must have their curriculum approved by the U.S. Trustee Program of the Department of Justice before they can be considered a recommended provider for this service.

Topics covered in credit counseling include: understanding the underlying causes of financial problems, budgeting, analyzing income and expenses, understanding debt to income radios, providing guidance on debt management plans, and understanding the consequences of filing for bankruptcy. Topics covered inside the financial management counseling course include: setting short and long-term financial goals, net vs. gross income, variable vs. fixed expenses, money management, insurance, using credit wisely, understanding credit ratings, and learning about consumer laws and regulations.