June 16, 2006
Is credit counseling a waste of time and money?
Meet Jack. He had a job as a salesman at a local departmental store. He’s not doing too badly for himself – he’s got himself a home, and manages to pay his monthly installments on time and has even managed to save a little from his monthly salary towards his retirement. He was quite well off until an ownership change laid him off. In his mid-40s, Jack is suddenly jobless and has been trying without success to find some kind of employment for the past five months. In the meanwhile, his bills have piled up. Collectors started calling, threatening to repossess his home and his car.
Jack soon realized that the matter was getting out of hand and that he had only one option left – file for bankruptcy. Once he made the decision, he didn’t waste any time contacting a credit-counseling agency, so he could get over this first step towards bankruptcy. Here he was supposed to review his finances and find a way to repay his creditors. And that’s when he realized the futility of this provision in the new bankruptcy law.
This is a story that most people who have filed for bankruptcy, are familiar with. You approach a counseling agency hoping to get some kind of advice and the only kind they can suggest is to file for bankruptcy! The basic problem with the credit-counseling provision of the bankruptcy law is that usually, it's too late by the time many consumers get counseling. Their financial situation is so bad that they have no choice but to file for bankruptcy. And according to some observers, credit counseling isn't working as intended. It doesn't appear to be shifting more people into debt-management plans instead of filing for bankruptcy. And the worst part is that credit counseling is proving to be pricey for the consumers with most of them being unable to cough up the high fees required by the agencies.
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