Mandatory credit counseling has some troubles

New debt relief law mandates that Americans who seek to apply for debt relief in court must see credit counseling agencies first. The required credit counseling prerequisite for those seeking debt relief through the courts is causing a lot of concerns that have yet to be straightened out.

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The recently passed debt relief law that The legislature accepted so excitedly in 2005 has quite a few sticking points that still plague consumers. The claim by lenders and creditors that debtors simply don't want to pay their bills is not true; the majority of people who file for bankruptcy simply can't pay their bills. Studies note that applicants aren't accumulating debts via online gambling or shopping; most filers have lost jobs or suffered from illness or injury. Only three percent of those who have applied for debt relief since the law has gone into effect have been able to enroll in a debt management plan; the other 97% have still filed for debt relief.

Although the law has not worked as intended, people are still being required to jump through the hoops that Washington has built. The new law requires that anyone who plans to apply for bankruptcy must first enroll in credit counseling, which might seem like a great idea, as not many Americans have proper financial training. The new legislation states that counselors must be approved by the US Trustees, and the number of financial professionals approved up until now is few, making it hard for debtors to obtain the mandated guidance.
 

Here are a couple of the troubles that have appeared thus far:

• Fee problems - The bankruptcy law insists that debtors who can't pay for their consultation be permitted to obtain it at no charge, which is hurting the agencies. A fee of $50 is a great deal less than most financial professionals were requiring prior to the passage of the bill. The US Trustees did not set up a payment guideline, but did "recommend" that a top charge of $50 might not be unreasonable. Fee guidelines are still all over the place as counselors try to determine how they will handle larger groups of people for less money then they were previously getting.
• Counselors are overworked - Instead of thorough, one on one meetings, debtors are instead having to do it over the phone because of personnel shortages. Those debtors who do receive personal advice are getting mostly an admonishment not to "spend recklessly." Some agencies are providing assistance over the World Wide Web, using computer programs that often include filling out a survey. The fairly small number of available credit advisors has put a strain on the agencies.
• Criminal problems - A few dozen dishonest companies have been put out of business by the Federal government, with more to come. The Internal Revenue Service has been investigating quite a few supposedly "non profit" agencies that were actually just funneling money to profit-seeking related businesses. A few unscrupulous businesses have been enrolling their clients in debt management plans that are putting money in the companies' bank accounts and shoving the clients further into financial trouble.

In an ideal world, the legislature would realize that the Bankruptcy Abuse and Consumer Protection Act was useless and repeal it. It will be nice if the Trustees can clear up the problems soon, as consumers with problem debt need the help. In time, the problems with mandatory financial assistance will all sort themselves out. Until that happens, consumers will have to undergo a process that may offer little help to them while costing them money. There seems to be little benefit in that.