Credit counseling - The problems with making it mandatory

So far, government-madated credit counseling doesn't seem to be helping anyone. Recent revisions in U.S. bankruptcy law mandate that prospective filers enroll in a credit credit guidance program as a prerequisite to filing for debt relief in court.

In order to stop those people who don't intend to repay, which proponents of the bill say is the leading cause of most bankruptcies, Congressmen put a few obstacles in the path of likely filers, including the requirement that someone considering applying for bankruptcy must first undergo credit counseling. New bankruptcy legislation was supposed to make it more difficult for people who want to avoid paying their bills to have their financial obligations relieved by the courts. The credit counseling industry has derived great benefits from the revision of the Federal bankruptcy code enacted recently.

Mandatory credit counseling has been terrific for the industry, as they are now buried in clients. Due to the influx of new business generated by the debt relief law, many counseling agencies have had to begin meeting with clients in groups and/or providing counseling over the World Wide Web. The counseling industry likes the commerce that the new law has thrown their way, even if they are experiencing difficulties helping all of their new customers. Bogged down with new debtors as a result of the revision in law, counseling agencies just cannot offer an adequate amount of help for the fees paid them. Group counseling is a lot less individualized and not nearly as thorough as it could be, but the Required $50 fee that counseling agencies are able to charge has limited the opportunities of the agencies.
 

Since the legislation was passed at the urging of the charge card industry, the portion of the law requiring financial assistance was inserted in order to persuade more debtors to pay their debt. The most important motive for mandating professional help is that it was believed that advisors might be able to steer a number of people towards a debt repayment plan instead of having them file for debt relief. There were several purposes for inserting financial advice in the bankruptcy law, one of which was to provide debtors with a bit of money management education that they otherwise would never get. Not too many consumers ever have any kind of formal education when it comes to dealing with their money, so some assistance could help them in the future.

Nobody wants to file for bankruptcy; it ruins your credit score and makes it very hard to borrow money, find a house, or even find employment. It is obvious that required assistance has not worked in the intended manner. The idea that debtors apply for debt relief because they simply don't want to pay is a myth. Most people file for personal bankruptcy because they have become victims of circumstances beyond their control. A recent report shows that a whopping 97% of all debtors who have undergone the financial assistance as required by the new law have gone on to file for debt relief in court. That most people with financial problems end up filing for bankruptcy shouldn't surprise anyone; most people who seek debt relief do so because they simply cannot pay their debts. More often than not, a consumer's debt burden is created by either an unexpected job loss or a health crisis, such as an illness or an accident.

Unless Washington determines that the bill is misguided, debtors will continue to receive financial guidance, whether it helps them or not. That pretty much makes it a waste of time for everyone.