Credit counseling - Is mandatory counseling helping anyone?

So far, mandatory credit counseling doesn't appear to be doing any good. Recent changes in Federal bankruptcy law mandate that debtors enroll in a credit counseling program as a prerequisite to filing for debt relief.

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The Bankruptcy Abuse and Consumer Protection Act was designed to make it harder for individuals who wish to get out of paying their bills to have their debts forgiven by the bankruptcy court. In order to stop those debtors who do not want to pay money back, which supporters of the bill say is the primary cause of the majority of bankruptcies, Congressmen put a few obstacles in the path of would-be filers, like the requirement that someone thinking about applying for debt relief must initially submit to credit counseling. The credit counseling industry has benefited tremendously from the overhaul of the Federal bankruptcy code ratified in 2005.

Bogged down with new customers because of the change in law, counseling agencies simply can't provide sufficient help for the money they may charge. The counseling industry appreciates the commerce that the new legislation has thrown their way, even if they are having trouble keeping up with every one of their new customers. Group counseling is much less personal and not nearly as detailed as it should be, but the Required fifty dollar maximum fee that counseling agencies may charge has limited the options of the agencies. Due to the volume of new business generated by the bankruptcy law, a lot of agencies have had to resort to counseling consumers in groups and/or providing guidance over the Internet. Mandatory counseling has been great for the credit counseling industry, as they are suddenly buried in customers.
 

The primary motive for requiring credit guidance is that it was believed that financial counseling might be able to steer a number of debtors towards a debt management plan instead of having them file for bankruptcy. Since the debt relief law was ratified at the urging of the credit card industry, the provision of the law requiring counseling was inserted in order to encourage more debtors to pay their bills. Not too many consumers ever have any sort of formal education when it comes to managing their money, so some credit counseling could help them down the road. There were a number of purposes for inserting financial counseling in the bankruptcy law, one of which was to provide filers with a bit of money management education that they otherwise might not get.

A recent study shows that an astounding 97% of all people who have submitted to credit assistance as required by the new law have gone on to file for debt relief. The notion that people file for debt relief because they simply don't want to pay is a myth. Many, if not most debtors file for bankruptcy because they have become victims of circumstances beyond their control. More often than not, a consumer's debt burden is caused by either an unforeseen job loss or a medical crisis, like an illness or an accident. That most people with financial problems end up applying for debt relief shouldn't come as a surprise to anyone; most people who file do so because they simply cannot pay their debts. Nobody wants to apply for bankruptcy; it hurts your credit score and makes it very difficult to borrow money, find a place to live, or even get a job. It is clear that government-madated credit guidance hasn't worked in the intended manner.

Unless Congress decides that the law is misguided, those seeking debt relief will continue to receive counseling, whether it aids them or not.