Credit counseling and dishonest agencies

The government has made a list of a number of unscrupulous credit assistance agencies, but hundreds of others are still out there. The most recent attack by the Internal Revenue Service on not for profit credit assistance agencies is not finished.

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The idea of requiring credit counseling is laudable, at least in concept - individuals without any formal financial education ought to find out about handling money and possibly avoid filing for bankruptcy. The Bankruptcy Abuse and Consumer Protection Act, enacted in 2005, had the unprecedented provision that an individual applying for debt relief through bankruptcy must first sign up for a credit assistance program. The requirement for mandatory credit guidance hasn't actually worked; most people who seek credit assistance have found it necessary to file for bankruptcy, anyway.

The legislature has unknowingly built a pretty lucrative business for those who wish to engage in counseling and profit from of people. The counseling provision has created a bit of a stampede as debtors head for credit counseling agencies. The Internal Revenue service has recently revoked the tax-exempt status of a large number of businesses that were found to be profiting from their clients, often by enrolling them in expensive debt repayment plans that may or may not have been in the customers' best interests.
 

How can you be certain of seeing a counselor who will assist you rather than hurt you? How can you select a credit counselor?

Following are some signs that may hint that the agency is not trying to help you:



The agency implies that you include your student loans in your financial obligations. Any responsible counselor will know what manner of debt may be forgiven and which ones may not. Student loans are not negotiable, nor may they be wiped out through bankruptcy.

The agency provides only ballpark numbers regarding how your debts will be handled rather than specific details for each of your creditors.

The company promises "reduced payments." They cannot reduce payments as such; they can only arrange to lower the interest rate. A lower rate of interest may yield a somewhat smaller payment, but claims of "cutting your payments by fifty percent" are pipe dreams, so don't fall for it.

The company asks for money before they perform any services or pressure you to pay what they refer to as "voluntary payments."

The organization suggests that you will receive savings due to the fact that they are "nonprofit." A nonprofit counseling agency might or might not help you; the fact that they are "nonprofit" is irrelevant. While the new bankruptcy law requires that all agencies be nonprofit, there is no inherent benefit to a nonprofit agency.

Any credit counselor or financial advisor engaged in any of the above items should be looked upon with caution. You might conduct an Internet search to see if you can find any information about how a specific counseling agency has treated previous clients. You may wish to contact your neighborhood chapter of the Better Business Bureau to see if anybody has complained about them.

The Internal Revenue Service does have some information about some of the counseling agencies which have had their tax-exempt designation taken away at their Website. It wouldn't hurt to meet with other people you know to see if they have had any experiences with the counseling agency in question.

One thing you don't want if you are about to file for bankruptcy is to deal with a financial counseling company that will make your financial situation even worse. That can be avoided by taking the time to select your help wisely.