| Bankruptcy credit counseling gets
mixed reviews |
| By Brigitte
Yuille • Bankrate.com |
| Reviews have been mixed for the
credit counseling sessions required under the new bankruptcy law that took effect
in the fall of 2005.
Supporters say the counseling sessions are doing what
the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
intended -- putting more information into consumers' hands.
"At this
point it is too early to tell all of the outcomes that will evolve from this provision,"
says Steve Bartlett, president and CEO of the Financial Services Roundtable, a
trade association of consumer credit and finance companies. "But we are confident
that through the counseling process, consumers will better understand all their
options for getting their financial house in order." Consumer
advocates charge that the sessions are often a waste of time and money they liken
to traffic school. They say: The sessions
are a hodgepodge, with services spread unevenly across the country. In many places,
only telephone and Internet sessions are available.
The fee structure is still unclear. The law allows
credit counselors to charge a "reasonable" fee. The Department of
Justice's U.S. Trustee Program, which enforces bankruptcy laws,
has said it expects the fees to be from free to $50 but has not
established any guidelines.
Counselors
occasionally cross the line into improperly giving legal advice."Congress
has created a layer to charge a consumer $50 for a joke," says bankruptcy
attorney Larry Feinstein of Vortman and Feinstein in Seattle. "There's no
real credit counseling." The new law makes it much tougher
to file for bankruptcy. One provision requires debtors to get credit counseling
before they can file for a Chapter 7 or Chapter 13 bankruptcy. In addition, the
debtors must go through another credit counseling session before their debts can
be discharged. The counseling can be delivered in person, over the phone or on
the Internet.
During the pre-filing consultation, a certified consumer
credit counselor discusses how the debtor landed in the financial
hole and provides the debtor with a budget analysis and possibly
a debt-repayment plan. This session, which should be 90 minutes
long, has consumers review all their options before making the leap
to bankruptcy. Consumers can expect to pay about $50 for this requirement.
The second session, required before
the final discharge of debts, is a two-hour personal financial management course.
In this session, debtors will be instructed on budget development, money management
and the wise use of credit and consumer financial resources. It also will cost
about $50. Records show that slightly more than 38,000 people
filed for bankruptcy between Oct. 17, when the new law went into effect, and the
end of the year, making them, and all subsequent filers, subject to the counseling
sessions.
To assess the effect of the sessions, Bankrate spoke
to bankruptcy experts, financial industry experts and counselors,
and attended
counseling sessions.
The counselors'
view
Counselors say they're doing their best in a new system to give
sometimes-nervous clients a new window on their finances. "We
try to make it pleasant and nonthreatening," says Dee Anne Chandler, education
director at Springboard Nonprofit Consumer Credit Management Inc., in Riverside,
Calif.
"Some take advantage of having the interaction
with a counselor and some do not," she says. "They say
it was less threatening than they originally thought. They weren't
left to feel as if it was their fault and that their financial troubles
were caused by their own actions."
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