Forced credit counseling has some problems

The recently passed bankruptcy law that Congress accepted so strongly in 2005 has a number of sticking points that continue to annoy consumers. The argument by lenders that debtors just don't care to pay their bills is fraudulent; the majority of debtors who seek debt relief simply can't pay their bills. Surveys indicate that filers aren't running up debts through casino gamling or reckless spending; many, if not most people have lost jobs or suffered from illness or injury. Just 3% of people 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 ninety seven percent have still qualified for debt relief.

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The mandatory credit guidance prerequisite for those looking for bankruptcy is triggering quite a few problems that have not yet been resolved. New debt relief law requires that debtors who seek to file for debt relief must see credit counseling agencies first.

Even though the law has not worked as intended, debtors are still being forced to jump through the hoops that Congress has built. The new debt relief law says that credit advisors must be certified by the US Trustees, and the number of counselors approved so far is few, making it difficult for people with financial problems to get the mandatory counseling. The new legislation requires that anyone who intends to apply for bankruptcy must first undergo financial counseling, which might seem like a great idea, as few Americans have any formal monetary training.
 

Here are a couple of the problems that have sprung up so far:

• Financial advisors are stressed - Those debtors who do receive in-person assistance are getting mostly an admonishment not to "blow all your money." Instead of in-depth, one on one assistance, debtors are instead having to do it over the phone due to personnel shortages. The pretty small number of approved counselors has put a burden on the agencies. A number of agencies are providing guidance via the Internet, using computer programs that simply include filling out a questionnaire.
• Fraudulent problems - Several dozen unscrupulous agencies have been put out of business by the Federal government, with more to come. A few less than honest agencies have been enrolling their clients in debt management programs that are padding the agencies' bank accounts and shoving the customers further into debt. The IRS has been looking into a number of allegedly "non-profit" agencies that were really just funneling cash to profit-seeking related businesses.
• Payment troubles - The US Trustees did not set a fee guideline, but did "recommend" that an uppermost fee of $50 would not be unreasonable. A fee of fifty dollars is a great deal less than most agencies were requiring before the enactment of the debt relief law. The bankruptcy law requires that debtors who cannot pay for their consultation be permitted to get it for free, which is impacting the agencies. Payment structures are still quite varied as counselors try to figure out how they will manage larger groups of debtors for less money then they were receiving before.

At some point, the difficulties with government-madated financial assistance will all sort themselves out. In a perfect world, Washington would see that the entire bankruptcy law of 2005 was pure folly and repeal it. That seems quite unlikely, however. It will be nice if the Trustees can sort out these problems soon, as Americans with debt problems need the guidance. The sooner that good help becomes available to those who need it, the better off everyone will be.