Credit Counseling: Mostly a Waste of Money But Could It Be More?

24 Jul Credit Counseling: Mostly a Waste of Money But Could It Be More?

Credit counseling prior to filing bankruptcy has been required for almost two full years now and it is largely proving to be a waste of time and money. And a danger to unaware needy consumers. Could it be made useful? Maybe.

Springfield, Missouri local news reports that virtually everyone — 99% — obtaining pre-bankruptcy counseling from a local agency had no realistic alternatives to filing. In only about 1% of the cases could a non-bankruptcy alternative be reasonably suggested. This is of course what consumer advocates have been saying all along: Most people who file for protection don’t really have any other viable choices.

The most reasonable option would be to do away with the requirement and stop trying to trip up disorganized or unrepresented consumers. However in coming years, if the pre-bankruptcy counseling requirement stays, the U.S. Trustee should change its focus. Change it from telling folks what they already know — they don’t really have a lot of other choices than bankruptcy — and assist them in preparing for the bankruptcy process. Provide some value for the fee.

This could be more useful to the everyone in the process. For example, a consumer could learn more about whether they can really afford a car or home they wish to try to keep through the process. Or what cuts have to be made to do so — and whether the trade-off makes sense. These are decisions with serious personal rationalizations — a lot of hopes, dreams, or even fantasies come into play.

The consumer’s bankruptcy lawyer can help with this. But many, possibly most, lawyers even in this area are not trained financial analysts. The counseling provided could fill this potential gap with a complimentary service to the legal service provider. This counseling would better mesh with the post-petition financial management skills training required in order to obtain a discharge. Both programs could potentially help consumers be better prepared for completing Chapter 13 payment programs or achieving the maximum fresh start in any bankruptcy.

Unfortunately, the U.S. Trustee is not likely to encourage or even tolerate such changes in direction at this stage. So it is likely that the pre-filing programs will continue to represent nothing more than a time wasting expense — a surcharge on top of an ever-increasing filing fee.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website:
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