Bankruptcy Law Blog

Friday, September 30, 2016

Credit Counseling: Not Just Another Hoop To Jump Through

A few years ago, Congress updated our nation’s bankruptcy laws. Conservatives and the financial services lobbies argue that the new law was needed to curb abuse of the bankruptcy system and teach people to be more financially responsible, while liberals and consumer advocates say that this law unfairly penalizes poor people who may be suffering financially due to illness, divorce or unemployment.

One of the things people who want to file for bankruptcy must now do, which all sides generally agree is a good thing, is undergo credit counseling.

When done properly and taken seriously, credit counseling is more than just a hoop to jump through. Credit counseling can help many people get their financial house in order, and keep it in order for the rest of their lives.

What is Credit Counseling?

Credit counseling is exactly what is sounds like - advice from a financial expert about how to reduce debt and make smart money decisions going forward.

During a typical counseling session, which should last around 60-90 minutes, and can take place in person, on the phone, or online, a counselor will:

  • Evaluate the finances of the potential filer
  • Discuss alternatives to bankruptcy
  • Help the would-be bankruptcy filer develop a realistic, personalized budget

How Can I Tell Which Counselors Are Legit?

Because credit counseling is required for people that want to file bankruptcy, a bunch of people have gotten into the credit counseling business. A lot of these people are great, but there are also a lot of scammers out there looking to take advantage of people who are in financial trouble.

The Consumer Financial Protection Bureau, a federal government agency tasked with protecting consumers, suggests consumers ask the following questions to figure out which credit counselor to hire:

What services do you offer? Look for an organization that offers a range of services, including budget counseling and classes for managing savings and debt. Avoid organizations that push a debt management plan as your only option before they have spent a significant amount of time analyzing your financial situation.

Do you offer in-person counseling? Consider finding an organization that offers in-person counseling.

Do you offer free educational materials? Avoid organizations that charge for information.

What are your fees? Are there set-up or monthly fees? Get a specific price quote in writing.

What if I can't afford to pay your fees or make contributions? If an organization won't help you because you can't afford to pay, look elsewhere for help.

Will I have a formal written agreement or contract with you? Don't sign anything without reading it first. Make sure all verbal promises are also in writing. As with any financial product or service, don’t sign anything that you don’t understand.

Are you licensed? Is the organization or counselor licensed to offer services in your state? Find out about what training or professional certifications the counselor has received.

How are your employees paid? Are they paid more if I sign up for certain services, if I pay a fee, or if I make a contribution to your organization? If the answer is yes, consider it a red flag and go elsewhere for help.

The questions above can help people who need credit counseling find a counselor who is a good personal fit, but it is also critical to check and make sure that the court recognizes a specific counselor as legitimate.

In every state except Alabama and North Carolina, court officials called Bankruptcy Administrators approve pre-bankruptcy credit counseling organizations.

In Alabama, each bankruptcy court maintains its own list of approved credit counseling agencies. Click on the links below to see the list of approved agencies for the:

Northern District of Alabama

Middle District of Alabama

Southern District of Alabama

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