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Contents
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Credit counseling - Things to avoid
Signs that your credit counselor may not be helpful
Credit counseling is now a prerequisite for a bankruptcy filing and counselors are springing up everywhere. Here are some things to avoid when shopping for a credit counselor.
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Credit counseling agencies can help you or hurt you. How to avoid the bad ones
Since the Bankruptcy Abuse and Consumer Protection Act went into effect in the fall of 2005, more and more consumers are having to deal with a service that they have never before encountered - credit counseling. Prior to the bankruptcy reform legislation, it was a service that many people used to get their financial affairs in order. With the passage of the Act, such counseling is now a requirement for anyone who is considering filing for personal bankruptcy. While we generally disagree with the major provisions of the Act, the counseling provision was a good idea. Many people simply do not have a grasp of even simple matters when it comes to handling finances. A bit of education can go a long way, even if it is a precursor to bankruptcy. Better late than never.
Unfortunately, not all credit counseling agencies are looking out for the consumer. Many are primarily interested in padding their own pockets; something that can be easily done. Many creditors will share a portion of a debtor’s paid-off debts with the counseling agency that helped the consumer pay the bills. That’s nice, but the first priority of any reputable counseling service should be to help the consumer.
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Here are a few things to avoid when you are seeking out a credit counseling agency.
- Only agencies that have been approved by the U.S. Trustees office will be accepted as a prerequisite for a bankruptcy filing. If the agency tells you that they have been approved, ask them to prove it. Many agencies are claiming to be approved when they are not, resulting in customers who pay fees to the agencies but do not receive the counseling needed prior to filing for bankruptcy.
- Watch out for agents that tell you not to contact a credit bureau or any of your creditors. In order to gain leverage in debt negotiation, many agents will tell you not to contact your creditors or pay your bills. While you do gain some negotiating leverage from not paying your bills, you will also see additional damage to your credit score. Failing to pay your bills will do that.
- Watch out for agents that tell you that you can have a new credit identity by applying for an Employer Identification Number to use instead of a Social Security number. Not only is this illegal, but the credit bureaus are smart enough to connect the dots. Eventually, they will realize that the “new” identity and the old one are the same. You can run, but you cannot hide.
- Watch out for agencies that want you to pay ahead of time for credit repair services. By law, they cannot require payment until the services, if any, have been performed.
- Watch out for agencies that advise you to dispute any and all late notifications or failure to pay notifications on your credit report, even if they are true. This is a stall tactic that will get you nowhere and will do more harm than good.
There are plenty of reputable counseling services out there, but there are also some disreputable ones. Be sure you know how to tell the difference.
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