Credit counseling - Problems with requiring it for debtors

The mandatory credit counseling requirement for those seeking out debt relief through the courts is triggering a lot of problems that have yet to be resolved. New debt relief legislation mandates that debtors who plan to file for debt relief must see credit counselors beforehand.

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The recently passed bankruptcy law that Washington embraced so strongly in the spring of 2005 has a few sticking points that continue to annoy people in this country. The claim by financial institutions that filers just do not want to repay debts is false; the majority of people who apply for bankruptcy simply can't pay their bills. Statistics indicate that filers aren't amassing debts through gambling or reckless spending; many, if not most those who file have lost jobs or suffered from illness or injury. Only three percent of people who have applied since the law has gone into effect have been able to enroll in a debt management plan; the other ninety seven percent have still filed for debt relief in court.

The new law mandates that an individual who intends to file for debt relief must first undergo credit counseling, which might seem like a good idea, as few Americans have proper financial training. The legislation says that counseling agencies must be approved by the US Trustees, and the number of financial professionals authorized so far is few, making it difficult for debtors to obtain the required counseling. While the bankruptcy law hasn't worked as planned, consumers are still being forced to deal with the mess that Washington has constructed.
 

Here are a few of the problems that have appeared thus far:

• Illegal headaches - The Internal Revenue Service has been researching a number of allegedly "non profit" agencies that were really just funneling cash to for-profit affiliate companies. A few unscrupulous agencies have been signing up their clients in debt repayment plans that are padding the agencies' bank accounts and shoving the clients further into financial trouble. A few dozen dishonest agencies have been put out of business by the Federal government, with more to come.
• Agencies are overworked - Some agencies are furnishing assistance over the Internet, using automated programs that simply involve completing a questionnaire. Rather than in-depth, one on one consultation, applicants are rather doing it on the telephone due to personnel shortages. Those consumers who do receive in-person assistance are getting mostly an admonishment not to "blow all your money." The pretty small number of available counselors has put a strain on the agencies.
• Pricing issues - Payment guidelines are still quite varied as agencies try to figure out how they can manage larger numbers of people for even less cash then they were receiving before. The bankruptcy law insists that people who cannot afford to pay for their consultation be permitted to obtain it for free, which is hurting the agencies. A payment of $50 is a great deal less than most agencies were charging prior to the enactment of the bill. The US Trustees did not set a payment schedule, but did "suggest" that a maximum payment of $50 would not be unreasonable.

In an ideal world, the legislature would see that the entire Bankruptcy law of 2005 was a bad law and repeal it. It would be nice if the US Trustees can straighten out the problems soon, as consumers with debt troubles need the guidance. Ultimately, the problems with mandatory professional guidance will straighten themselves out. Let’s hope so, as millions of people will otherwise go without the help that they desperately need with their financial problems.