Credit counseling - The problems with “revolving door” help

The Bankruptcy Abuse and Consumer Protection Act demands that debtors submit to financial counseling before filing for bankruptcy and that they be able to demonstrate that they have been counseled. The credit counseling process that has been created to control the flow of pre-bankruptcy consumers is misguided and is helping no one.

The new law clamps down on debtors in some fairly serious ways, including a provision that debtors must submit to professional financial guidance as a prerequisite to a bankruptcy filing. There were several reasons for revising debt relief law, but the primary one was that the credit card companies and Congress believe that a lot of people who apply for debt relief through the courts are fully capable of paying back their debts and are applying for bankruptcy just because they do not care to pay. The debt relief law that Congress passed several years ago was written to completely reform bankruptcy law as we know it.


The counseling prerequisite has had the effect of hurting the counseling industry and failing to help debtors. The counseling industry just wasn't as large as it needed to be to handle the large influx of new clients that are now being railroaded through the mechanism. The new law mandates that the fees billed to debtors be "reasonable." The suggested fee structure has created problems for the counseling industry, as that proposed fee doesn't account for the cost of offering the service, nor does it provide enough additional funds to provide for the hiring of more help. Prior to enactment of the law, few debtors attended counseling sessions, figuring that their debts were too great for them to be helped by financial advice. The law did not specify a fee structure for counseling agencies, but a fee of fifty dollars was suggested.
 

The filers aren't reaping any rewards from the required counseling clause. In some cases, the debtor just receives "credit counseling" via the World Wide Web through some type of automated program. Instead of a series of detailed meetings that would permit a counselor to take a serious look at a debtor's finances, the "counseling" mostly consists of either a large group meeting and some cursory "try not to spend more than you have" suggestions.

The counseling industry, which formerly at least pretended to help consumers with their troubles, is now just a revolving door for debtors with $50 bills. If the purpose of passing the bankruptcy law was simply to make it so difficult and drawn-out to file that consumers might be discouraged from doing so, the law may have been successful. If, as The Federal government suggests, the reason for the counseling provision was to get people to be self-sufficient so that they could repay their bills instead of having the courts wipe them out, the debt relief law has almost certainly been a complete waste. Is no-help counseling really what Washington had in mind?

It seems that this debt relief law, like a lot that come from Washington, is just a headache that is wasting the time of all participating and helping nobody. Reports show that nearly ninety seven percent of the individuals who have enrolled in counseling meetings have still met the requirements to seek debt relief.