Under proposed bankruptcy legislation, which appears to be on the road to passage, individuals will have to undergo some form of credit counseling at least 180 days before they are allowed to file for bankruptcy protection.
People could get counseling individually, as part of a group, over the telephone or through the Internet.
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The supposed intent of the law's counseling provision is to make sure debtors know they have options other than bankruptcy.
That sounds reasonable, right?
Well, it would be if the credit-counseling industry was better policed.
Before I go on, let me be clear: There are many good credit-counseling agencies out there helping people manage a burdensome amount of debt. But it is also true that this unregulated industry is pocked with so-called nonprofit agencies that provide poor advice, charge excessive fees or steer debtors to for-profit sister operations that peddle debt consolidation loans or other financial products.
Many of the credit-counseling companies you see advertised on television are just debt mills. Their purpose isn't to provide financial education. Instead, these firms exist primarily to collect fees from signing up as many people as they can for cookie-cutter debt repayment plans.
Some providers of credit counseling object to the characterization that the industry is in a credibility crisis.
"Those concerns are unfounded," Susan C. Keating, president and chief executive of the National Foundation for Credit Counseling, wrote in a letter to the Republican and Democratic leadership on the House Committee on the Judiciary, which has approved the reform legislation. It now moves to the House floor, where it is expected to be considered in early April. The measure has already passed the Senate.
Still, Keating acknowledged in her letter that in recent years, there have been a number of new entities that have engaged in very aggressive marketing and advertising while providing very little legitimate credit counseling or financial training.