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Contents
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Credit counseling still a problem
Required counseling has fee and accessibility issues
New bankruptcy laws require that consumers who want to file for bankruptcy must see credit counselors first. This mandatory credit counseling requirement is causing a number of problems that have yet to be resolved.
Continued below
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Credit counseling agencies still have payment, and accessibility problems
The recently passed bankruptcy law that Congress embraced so strongly in 2005 has a number of sticking points that continue to plague consumers. It has already been demonstrated that the claim that consumers just don’t want to pay their bills is false; most people who file for bankruptcy simply cannot pay their bills. And they are not running up debts through gambling or shopping; most people have lost jobs or suffered from illness or injury. In fact, just 3% of people who have filed since the law has gone into effect have been able to enroll in a debt management plan. The other 97% have still qualified for bankruptcy.
Despite the fact that the law hasn’t worked as intended, people are still being forced to jump through the hoops that Congress has built. One of those is the requirement that anyone who intends to file for bankruptcy must first undergo credit counseling. On the surface, this seems like a good idea, as few people have any formal financial training. On the other hand, the counselors must be approved by the US Trustees, and the number of counselors approved so far is relatively few.
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Here are a few of the problems that have sprung up so far:
- Counselors are overworked - The relatively small number of available counselors has put a strain on the agencies. Instead of in-depth, one on one counseling, debtors are instead having to do it over the phone. Worse, some are doing it over the Internet, using automated programs that simply involve filling out a questionnaire. Somehow, this hardly seems to fit what Congress probably had in mind when they passed the law. Those that do receive in-person counseling are getting little more than an admonishment not to “spend more than you earn.”
- Fee issues - The US Trustees did not set a fee schedule, but did “suggest” that a top fee of $50 would not be unreasonable. This is far less than most counseling agencies were charging prior to the passage of the bill. Worse, the law requires that those who cannot afford to pay for their consultation be permitted to receive it for free. So fee structures are still all over the place as counselors try to figure out how they are going to handle larger groups of people for even less money then they were receiving before.
- Criminal issues - The Internal Revenue Service has been investigating a number of allegedly “non profit” agencies that were really just funneling money to for-profit affiliate companies. These agencies were enrolling their clients in debt management programs that were padding the agencies’ bank accounts and sending the clients further into debt. As a result, several dozen agencies have been put out of business, with more to come. This is adding to the strain on the industry.
In time, this will all sort itself out. In an ideal world, Congress would realize that the entire Bankruptcy Abuse and Consumer Protection Act was pure folly. That won’t happen, but we hope that the US Trustees can sort out the counseling problem soon. Consumers with problem debt need the help.
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