Credit counseling - Mandatory assistance has its problems

The mandatory credit guidance requirement for those looking for debt relief is instigating quite a few concerns that have yet to be resolved. New debt relief law requires that consumers who intend to file for debt relief must see credit counselors first.

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The recently passed bankruptcy law that Washington embraced so strongly in 2005 has a number of sticking points that continue to bother people with debt problems. The claim by lenders and creditors that people simply don't want to pay their bills is false; most debtors who seek debt relief simply cannot pay their bills. Surveys show that bankruptcy filers are not running up debts through gambling or reckless spending; a large number of people have lost jobs or suffered from sickness or injury. Only 3% of those who have applied since the law has gone into effect have been able to enroll in a debt management plan; the other 97% have still filed for bankruptcy.

While the law has not worked as planned, consumers are still being required to jump through the hoops that Congress has created. The new debt relief law states that counselors must be approved by the US Trustees, and the total number of counselors approved so far is relatively few, making it tough for those seeking debt relief to obtain the mandated counseling. The new debt relief law mandates that anyone who intends to file for debt relief must first enroll in credit counseling, which seems like a great idea, as few Americans have any formal financial training.
 

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

Financial advisors are overworked - Instead of in-depth, one on one guidance, debtors are rather having to do it on the telephone due to employee shortages. The relatively small number of approved financial professionals has put a strain on the agencies. Those debtors who do receive in-person assistance are getting mostly an admonishment not to "spend recklessly." A number of agencies are offering financial counseling over the Internet, using automated programs that simply involve completing a questionnaire.

Fee issues - The law demands that those who cannot afford to pay for their consultation be permitted to receive it without cost, which is hurting the counseling agencies. A payment of $50 is much less than a lot of counseling agencies were charging prior to the passage of the debt relief law. Fee structures are still quite varied as agencies try to figure out how they can manage larger groups of consumers for even less cash then they were previously getting. The US Trustees did not prepare a pricing guideline, but did "suggest" that a top fee of $50 would not be unreasonable.

Criminal issues - Several dozen dishonest agencies have been put out of business by the Federal government, with more to come. The Internal Revenue Service has been researching a number of allegedly "non-profit" agencies that were actually only diverting cash to profit-seeking affiliate businesses. A number of dishonest agencies have been enrolling their clients in debt repayment programs that are adding to the companies' bank accounts and shoving the customers further into debt.

In an ideal world, Congress would realize that the Bankruptcy legislation was useless and repeal it. It will be nice if the US Trustees can straighten out the counseling problems soon, as individuals with money troubles need the help. In time, the difficulties with government-madated professional counseling will all sort themselves out.

In the meantime, consumers will continue to suffer, as these half-baked plans continue to be forced upon those with financial troubles.