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Credit Counseling - Are All Counselors The Same?
By: Talbert Williams
In April 2005, Congress passed legislation comprising the most sweeping changes
in U.S. bankruptcy law in more than a quarter of a century. The law, known as
the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, was
intended to prevent consumers with problem debt from being able to easily have
their debts eliminated in court.
Under the old law, those with problem debt could file under Chapter 7 of the
Federal Bankruptcy code; new filers will probably have to file under the more
strenuous Chapter 13, which requires a repayment plan. Another provision of the
new law requires anyone considering filing for bankruptcy to first submit to
credit counseling prior to filing for bankruptcy.
On the surface, this isn’t really a bad idea. After all, the purpose of credit
counseling is to help people who have trouble managing money learn how to do so
wisely. Clearly, anyone who is filing for bankruptcy has a money management
problem, so credit counseling is probably a good idea. A competent credit
counselor will assist their client with establishing a repayment schedule,
learning to budget their expenses, and learning to avoid problem debt in the
future.
The problem with mandatory credit counseling may be with the counselors
themselves. With passage of the new law, the counseling industry is expected to
be burdened with an additional one and a half million customers per year. This
boom in demand will probably inspire a lot of people to become credit counselors
who do not have their customers’ best interests in mind.
A number or lawsuits have been filed in several states recently that accuse some
credit counseling firms that are ostensibly nonprofit agencies of fronting for
for-profit debt consolidation firms. These “friendly” nonprofit agencies will
strongly urge their clients to do business with their for-profit partners. The
result is often an expensive debt consolidation loan for the customer that may
or may not be helping them eliminate their debt.
How can someone who is genuinely interested in credit counseling seek a
reputable counselor?
• A counselor should listen to your problems. If the counselor starts offering
“solutions” to your problem within a few minutes of your arrival, you should be
suspicious. A good counselor needs a lot of information about a client in order
to help them, and that takes time.
• Be wary of firms that ask for a lot of money up front, especially nonprofit
firms that tell you that they cannot help you unless you pay first.
• Be cautious of firms that ask for a large fee to obtain a copy of your credit
report. Any legitimate agency should be able to obtain your credit report for
free.
• Bankruptcy is sometimes unavoidable. Watch out for agencies that tell you that
bankruptcy is never necessary. They probably want to steer you towards a
high-profit consolidation loan that may not help.
• Watch out for offers of a quick fix. You didn’t obtain debt problems
overnight, and you won’t get out of trouble overnight. Real problems take time
to solve.
• Ask the local Better Business Bureau if they have had any complaints about a
particular counseling agency.
The careful consumer can avoid making a bad situation worse by choosing their
counselor carefully. Take your time and talk to several agencies before making a
decision. It could save you a lot of money.
About the Author:
Talbert Williams offers debt consolidation, debt reduction, credit card debt
referrals and advice. For more information, articles, news, tools and valuable
resources on debt solutions, visit this site: http://www.1debtfreedom.com
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