Credit counseling - Is mandatory counseling helping anyone?

Recent changes in U.S. debt relief law require that debtors enroll in a credit counseling program prior to filing for debt relief. Up until now, mandatory credit counseling doesn't appear to be doing any good.

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Sweeping bankruptcy reform laws was created to make it harder for people who want to avoid paying their bills to have their debts relieved by the courts. So that they might stop those people who do not intend to pay money back, which proponents of the legislation say is the leading cause of the majority of bankruptcies, Congress put several obstacles in the way of would-be filers, including the requirement that anyone thinking about filing for bankruptcy must first undergo credit counseling. The credit counseling industry has reaped great rewards from the overhaul of the Federal bankruptcy code enacted in 2005.

The financial industry is happy with the business that the new debt relief legislation has thrown their way, even if they are experiencing trouble keeping up with all of their new customers. Mandatory financial assistance has been terrific for the credit counseling industry, as they are now awash in customers. Due to the influx of new business created by the bankruptcy law, a number of agencies have had to begin meeting with consumers in groups or providing counsel over the Internet. Burdened with new debtors because of the change in law, the agencies just can't provide enough help for the fees paid them. Group assistance is far less individualized and not nearly as detailed as it could be, but the Required fifty dollar maximum fee that agencies may charge has limited the opportunities of the companies.
 

The primary reason for requiring assistance is that it was assumed that professional help might be able to steer many debtors in the direction of a debt repayment plan rather than having them apply for bankruptcy. Not too many debtors ever have any kind of formal education when it comes to taking care of their money, so some education could help them later. Since the law was ratified at the urging of the charge card industry, the provision of the law requiring professional assistance was added in order to entice more people to pay their way out of debt. There were several reasons for inserting this provision in the bankruptcy legislation, one of which was to provide clients with a little money handling education that they otherwise might not get.

More often than not, a consumer's debt burden is caused by either an unforeseen job loss or a medical crisis, such as an accident or illness. That most people with debt problems end up filing for court-ordered debt relief shouldn't come as a surprise to anyone; most debtors who file do so as they simply cannot pay their debts. Nobody wants to file for bankruptcy; it destroys your credit score and makes it very difficult to take out a loan, find an apartment, or even get a job. A recent study shows that an astonishing 97% of all people who have submitted to financial guidance as required by the new debt relief law have ended up filing for bankruptcy. It is clear that required guidance has not worked as intended. The thought that people apply for bankruptcy because they just don't want to pay is a misconception. Many, if not most people apply for debt relief because they have suffered from things beyond their control.

Unless Congress decides that the bill is flawed, debtors will continue to undergo financial guidance, whether it aids them or not. That’s a shame.