Pre-Bankruptcy Credit Counseling Requirement Claims New Victims
Bankruptcy petitioners have been delayed, inconvenienced, and discouraged by the pre-filing credit counseling requirement since October 18, 2005. Some have even lost their homes and cars because they failed to file credit counseling certificates at the right point in the process.
The credit counseling obstacles for bankruptcy petitioners, though, can be managed and minimized by an experienced bankruptcy lawyer. Fee waivers are available at certain income levels, and attorneys can advise clients on when and how they should complete credit counseling and make sure certificates are filed, reducing the problem to a mere inconvenience.
Credit Counseling Creating Financial Crisis-for Credit Counseling Agencies
The credit counseling requirement is creating more serious problems for an entirely different group-one never projected to be a victim of bankruptcy reform. Credit counseling agencies are losing money at an astounding rate as they attempt to keep pace with the flood of new clients created by the 2005 bankruptcy law reform.
Credit counseling services may be provided in any of three forms: face-to-face, telephone, and internet. Face-to-face services are the most expensive to provide, at an average of $54.92. But even the most inexpensive means of delivery, Internet services, cost the credit counseling agencies an average of $44.91 to deliver. The average payment the credit counseling agencies receive for these services is $37.71. That means that even based on the most inexpensive delivery to pre-filing bankruptcy clients, the credit counseling agency loses an average of $7.20 per session. When delivering the more expensive face-to-face services, the average loss to the agency is $17.21 per session.
Non-Bankruptcy Debtors are Most Harmed by Credit Counseling Requirement
The group most harmed by the pre-filing requirement, ironically, is the one never referenced in the bankruptcy statutes. The National Foundation for Credit Counseling estimates that its members would have to double their counseling volume in order to meet the demands of the new bankruptcy law. That increase in volume would require an investment of about $20 million to hire and train new counselors and purchase computers and other needed equipment.
The huge volume of pre-bankruptcy clients, many of whom have urgent time constraints, has created a backlog that makes it difficult for non-bankruptcy clients to get services in a timely manner.
Agencies consistently report that fewer than 5% of the pre-bankruptcy filing clients they see have the means to consider any option other than bankruptcy. And, even those who might qualify for repayment plans aren't required to accept them. Thus, more than 95% of the clients agencies see as a result of the pre-filing requirement in the 2005 bankruptcy law end up filing for bankruptcy protection just exactly as they would have without the credit counseling.
Meanwhile, debtors who might have a chance at getting their finances in order without bankruptcy, benefiting themselves and their creditors, are often unable to obtain credit counseling services when they need them.