In April 2005, Congress passed legislation comprising the most
sweeping changes in U.S. bankruptcy law in more than a quarter
of a century. The law, known as the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, was intended to prevent
consumers with problem debt from being able to easily have their
debts eliminated in court.
Under the old law, those with problem debt could file under
Chapter 7 of the Federal Bankruptcy code; new filers will
probably have to file under the more strenuous Chapter 13, which
requires a repayment plan. Another provision of the new law
requires anyone considering filing for bankruptcy to first
submit to credit counseling prior to filing for bankruptcy.
On the surface, this isn't really a bad idea. After all, the
purpose of credit counseling is to help people who have trouble
managing money learn how to do so wisely. Clearly, anyone who is
filing for bankruptcy has a money management problem, so credit
counseling is probably a good idea. A competent credit counselor
will assist their client with establishing a repayment schedule,
learning to budget their expenses, and learning to avoid problem
debt in the future.
The problem with mandatory credit counseling may be with the
counselors themselves. With passage of the new law, the
counseling industry is expected to be burdened with an
additional one and a half million customers per year. This boom
in demand will probably inspire a lot of people to become credit
counselors who do not have their customers' best interests in
mind.
A number or lawsuits have been filed in several states recently
that accuse some credit counseling firms that are ostensibly
nonprofit agencies of fronting for for-profit debt consolidation
firms. These "friendly" nonprofit agencies will strongly urge
their clients to do business with their for-profit partners. The
result is often an expensive debt consolidation loan for the
customer that may or may not be helping them eliminate their
debt.
How can someone who is genuinely interested in credit counseling
seek a reputable counselor?
*A counselor should listen to your problems. If the counselor
starts offering "solutions" to your problem within a few minutes
of your arrival, you should be suspicious. A good counselor
needs a lot of information about a client in order to help them,
and that takes time.
*Be wary of firms that ask for a lot of money up front,
especially nonprofit firms that tell you that they cannot help
you unless you pay first.
*Be cautious of firms that ask for a large fee to obtain a copy
of your credit report. Any legitimate agency should be able to
obtain your credit report for free.
*Bankruptcy is sometimes unavoidable. Watch out for agencies
that tell you that bankruptcy is never necessary. They probably
want to steer you towards a high-profit consolidation loan that
may not help.
*Watch out for offers of a quick fix. You didn't obtain debt
problems overnight, and you won't get out of trouble overnight.
Real problems take time to solve.
*Ask the local Better Business Bureau if they have had any
complaints about a particular counseling agency.
The careful consumer can avoid making a bad situation worse by
choosing their counselor carefully. Take your time and talk to
several agencies before making a decision. It could save you a
lot of money.
About the author:
Talbert Williams offers debt consolidation, debt reduction,
credit card debt referrals and advice. For more information,
articles, news, tools and valuable resources on debt solutions,
visit this site:
http://www.1debtfreedom.com
