I hope all of you had a Happy Thanksgiving! Over the holiday, I read some interesting articles debating the value of credit counseling requirements that are part of the bankruptcy reform legislation. Some people are happy about these new requirements because they feel credit counseling offers debtors alternatives that they would not have been offered without credit counseling. Others see these requirements as yet another obstacle that must be overcome before debtors can obtain true debt relief.
The US TRustee's office is required to review programs offered by any agency seeking to be approved as a pre-filing credit counseling provider and as a post-filing educational course provider. The US Trustee requires companies, among other things to demonstrate extensive credit counseling experience, be bonded, and offer a bona fide counseling session (though the session could be over the phone or on-line and not necessarily done in person). The US Trustee's office requires any company seeking to be approved to go through an extensive application process highlighting its experience and conducts a detailed review of its programs. This review and approval process is meant to insure that debtors are receiving good information from reputable, independent companies that are focused on providing a service to the public and not profit motives.
At first glance, it appears that the legislation is attempting to insure that debtors are getting helpful information from companies that have the debtor's best interests at heart. However, many other people don't see it that way. The Editor and Publisher of Privacy Times, a Washington newsletter that covers the information world, Evan Hendricks (according to the Lincoln Journal Star) sees something missing. "They say they'll advise (potential filers) of all their options," he said. "But some of those are legal options, and credit counselors are not licensed to practice law." He feels that the motives of some of the credit counseling agencies are in meeting the needs of creditors, particularly large, financial services companies. "It looks like a way to discourage people from filing bankruptcy and places someone between the consumer and their legal representative," he said.
Credit counseling agencies admit that they are partially supported by creditors who benefit when someone arranges a payment plan as opposed to filing for bankruptcy. However, more than half of their budgets typically comes from fees paid by clients. Typical credit counseling fees vary, but are usually around $50 for a single debtor and $60 for a couple for both the pre-filing counseling and the post-filing educational session. The US Trustee requires that agencies who are approved also offer services "without regard to ability to pay" insuring that some debtors can obtain the services without cost, but that is typically handled on a case-by-case basis and is up to the credit counseling service provider to determine on its own.
The question, though, is whether or not the counseling helps to educate debtors, as it was intended? Or, is it simply another barrier to debt relief? Credit counseling advocates say that they don't steer potential bankruptcy filers away from bankruptcy. They insist that they discuss all sorts of financial issues with debtors. Obviously, the initial information a credit counselor asks the debtor is about income and monthly living expenses. But, credit counselors insist they also look at all of the debtor's assets, liabilities and net worth as opposed to just money management issues. Credit counselors insist debtors will benefit because they will better their knowledge of financial matters. Credit counseling advocates don't believe consumers have bettered their knowledge in the past.
From my perspective, I always viewed my job as a counselor exploring bankruptcy options with potential clients to review ALL options. As their attorney, or potential bankruptcy attorney, I have ethical obligations to review all of these things credit counselors say they are exclusively able to review. I also have legal obligations to make sure bankruptcy is in my potential client's best interests. I don't believe a credit counselor is more qualified than I am in analyzing my potential client's financial situation. In fact, I believe attorneys are better qualified, have had more training, and have more obligations to potential clients than credit counseling agencies do. Obviously, Congress feels that credit counseling agencies offer a better exploration of these issues than attorneys. I strongly disagree with this conclusion.
Also, as one staff attorney from the National Consumer Law Center pointed out that the credit counseling and debtor education requirements are not selectively imposed on debtors who are considering bankruptcy because of financial mismanagement. While many people find themselves considering bankruptcy because of bouts of financial irresponsibility and mismanagement, there are a lot of debtors who are considering bankruptcy because of circumstances that had nothing to do with financial mismanagement or irresponsibility. Health issues, divorces, and unexpected layoffs have caused many more people to file for bankruptcy than simple financial mismanagement. As John Rao of the National Consumer Law Center (as quoted in the Lincoln Star Journal points out: people "caught in a divorce or with health problems will have to go through a lot more hoops to get relief, which is not fair." As I see it, people considering bankruptcy because of these issues don't benefit at all from "education" or "counseling" because education and mismanagement was never the problem.
For the people who are considering bankruptcy due to uncontrollable, unforeseen, and unplanned health and marital problems, the credit counseling and debtor education requirements serve only to put up roadblocks to relief don't provide any benefit. There is no individual benefit to the debtor, nor does the requirement in any way benefit society's interest in reducing the need for bankruptcy.
http://www.legalhelpers.com/blog/2005_11_01_archive.html
