Originally published July 25 2005
New laws to reduce bankruptcy open doors to illegitimate credit counselors
by Mike Adams, the Health Ranger, NaturalNews Editor
A new law that would require credit counseling and education on financial management before allowing anyone to file for bankruptcy may put consumers at risk of being conned by less-than-honest credit counseling services, so Business Week offers some information to consider before choosing a credit counselor.
The new bankruptcy law imposes two requirements on anyone seeking to reduce or eliminate debt through the courts.
To file for Chapter 7 or Chapter 13 on or after Oct. 17, you must have had a credit-counseling briefing within the prior six months.
The provisions are intended to curb bankruptcies by helping people work out a plan to pay back what they owe and better manage their finances.
But the rules will send hundreds of thousands of people into a minefield where legitimate counseling agencies do business alongside unsavory players.
After a year-long probe, the Senate Permanent Subcommittee on Investigations reported in April that the counseling business is rife with excessive fees, deceptive practices, and poor advice.
The Internal Revenue Service is auditing more than 50 credit-counseling agencies suspected of abusing their tax-exempt status by steering clients into debt-management plans that charge high fees.
"In this industry the good players are the exception, not the rule," says Eric Friedman, chief of the Montgomery County (Md.) Consumer Affairs Div.
The agency negotiates reduced balances and interest rates with each of a client's creditors and typically gets 12% to 15% of the payments received.
Bankruptcy-court clerks around the country will keep public lists of nonprofit agencies and financial-ed courses certified by the U.S. Trustee.
Consumer groups advise sticking with agencies that are members of the National Foundation for Credit Counseling.
The NFCC has mandatory membership standards that require agencies to be licensed, bonded, and insured, and to have annual audits of operating and trust accounts.
These are red flags that suggest the agency is more interested in signing you up for services that boost its finances than it is in seriously analyzing yours.
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