Mandatory credit counseling

What sounded like a good idea…mandatory credit counseling for those planning to file personal bankruptcy…has the credit counseling agencies seeing red.

The new personal bankruptcy law in effect since last fall hasn’t decreased the number of personal bankruptcy filings. It’s only decreased the revenue brought in by the counselors. For example, one hour and a half session costs over $130 but nets only $35 for the agency (a little lower if the counseling is done via internet).

If a person decides to go with a debt management plan, the debt counselor negotiates a payment plan to lenders and they get a cut of that pay out from those lenders. However if the debtor decides to file bankruptcy rather than pay back,  there’s not much for the counselor.

Why do the credit counseling then? Some debt counselors say it gives them legitimacy in an industry that doesn’t have the best of reputations. There is some financial remunerations in the form of grants but soon that cupboard will be bare and the cost of the debt counseling will have to rise. This to a consumer who is already “in debt up to his eyeballs.”