Credit counseling - Are quick consultations working?

Sweeping bankruptcy reform law mandates that people with financial problems undergo professional credit counseling prior to applying for bankruptcy and that they be able to prove that they have received counseling. The financial counseling mechanism that has been created to manage the flow of pre-bankruptcy consumers is misguided and is helping no one.

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There were many reasons for reforming bankruptcy law, but the primary one was that the charge card companies and Congress believe that most people who file for personal bankruptcy are fully capable of paying back their bills and are applying for bankruptcy just because they do not care to pay. The debt relief legislation that Congress passed several years ago was intended to fully reform bankruptcy law as we know it. The revised law clamps down on filers in some pretty serious ways, featuring a requirement that debtors must undergo credit counseling before filing for bankruptcy.

The revised law mandates that the costs billed to clients be "fair." Prior to passage of the law, few filers attended credit counseling sessions, figuring that their financial obligations were too great for them to be helped by credit counseling. The credit counseling industry simply wasn't as big as it needed to be to manage the huge influx of new customers that are now being railroaded through the system. The suggested fee guideline has created problems for the industry, as that recommended fee does not account for the cost of providing the service, nor does it provide enough additional funding to provide for the hiring of more help. The counseling requirement has had the effect of hurting the counseling business and not helping consumers. The law did not specify a pricing structure for counseling companies, but a fee of $50 was suggested.

Instead of a number of thorough sessions that would allow a counselor to take a serious look at a filer's finances, the "consultation" mostly consists of either a group meeting and some cursory "try not to spend more than you have" suggestions. Occasionally, the client just receives "counseling" over the World Wide Web through some type of automated program. The consumers aren't reaping any benefits from the required financial guidance clause.

The counseling industry, which formerly at least pretended to help consumers with their difficulties, is now just a revolving door for people with $50 bills. If, as Congress says, the reason for the credit counseling requirement was to get people back on their own two feet so that they could pay back their financial obligations rather than having the courts wipe them out, the law has almost certainly been a complete waste. Is no-help counseling really what Legislators had in mind? If the reason for passing the bankruptcy law was simply to make it so awkward and time consuming to file that consumers might be dissuaded from doing so, the law may have accomplished its goal.

It is looking more and more as though this law, like many that originate from Washington, is just a nuisance that is wasting the time of all participating and assisting no one. Studies indicate that nearly 97% of the people who have sought meetings have still met the requirements to file for bankruptcy.