Rodd Cayton/Lincoln Journal Star | Posted: Saturday, November 12, 2005 6:00 pm
Drowning in debt? Bankruptcy may not be the only buoy to grab.
Thanks to a change in bankruptcy law, consumers in financial trouble will hear about other options, realistic or not, before they get in front of a bankruptcy judge.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which took effect Oct. 17, requires consumers to undergo credit counseling before filing, and to attend an educational session before their debts can be discharged.
The U.S. Trustee’s Office, which administers bankruptcy laws, has approved six firms to provide the counseling in Nebraska.
One of them is GreenPath, Inc, which offers sessions to Nebraskans only by telephone.
(Only Consumer Credit Counseling Service of Nebraska, Inc. provides in-person sessions in the state.)
GreenPath’s Amanda Wellington said the pre-filing session is focused on analyzing the consumer’s income and expenses. A counselor will discuss a variety of options, Wellington said, including filing for bankruptcy, putting together a repayment plan or a debt management program.
Options for some consumers may include refinancing on some loans or taking equity out of other assets, Wellington said.
The counseling isn’t designed to steer people away from bankruptcy, nor to require any repayment action by the consumer, Wellington said.
After a session that typically takes 30 to 45 minutes, she said, the consumer is presented a certificate of completion that will allow him to continue with a bankruptcy filing, if he still sees that as the right choice.
Consumer Credit Counseling Service of Nebraska prefers to conduct in-person sessions, said Betsy Downey, the agency’s director of education.
“The street wisdom is that bankruptcy will answer all your problems with money,” she said. But a bankruptcy filing can affect a consumer well into the future, she said, by causing trouble getting promotions or changing jobs, or causing the filer to pay more for home or car insurance.
Downey said Consumer Credit Counseling Service of Nebraska talks to clients about assets, liabilities and net worth, as opposed to just money management.
Donald Leu, president of Consumer Credit Counseling Service of Nebraska, said some workers at the agency are trained to provide both counseling and education sessions. The agency expects to have staffers pulling that double duty primarily in outstate Nebraska, Leu said.
To be approved by the U.S. Trustee to issue certificates under the law, counseling companies had to meet several requirements, Wellington said.
The agencies have to demonstrate extensive credit counseling experience, she said, they have to be bonded and qualify separately for pre-filing counseling and pre-discharge education.
But something’s still missing, said Evan Hendricks, editor and publisher of Privacy Times, a Washington newsletter that covers the information world.
“They say they’ll advise (filers) of all their options,” he said. “But some of those are legal options, and credit counselors are not licensed to practice law.”
Hendricks called into question the motives of counseling agencies. He said they’re more interested in the needs of creditors, particularly large financial services companies.
Of the counseling requirement in the new bankruptcy law, Hendricks said, “this reflects the power of the credit card companies.
“It looks like a way to discourage people from filing bankruptcy and places someone between the consumer and their legal representative,” he said.
GreenPath spokeswoman Maureen O’Hara differed. While GreenPath, a not-for-profit 501(c)3 organization, is partially supported by creditors who benefit when a consumer arranges a payment plan, she said more than half of its budget comes from fees paid by clients.
Consumer Credit Counseling Service of Nebraska is financed by consumer fees, a cut of payments it sends to creditors, and grants from banks, other lenders, research agencies and other businesses representing creditors, said Downey.
The pre-filing counseling session and pre-discharge education course each cost $50 for a single debtor and $60 for a couple, O’Hara said. A single debtor buying both at once is charged $95, a couple $110.
“We have a provision in place for those who are unable to pay,” said O’Hara. “And we determine this on a case-by-case basis.”
Consumer Credit Counseling Service of Nebraska charges $50 for the pre-filing session and $75 for the post-filing session, the cost of which includes a book on consequences of and alternatives to personal bankruptcy.
The Nebraska agency also gives each consumer-student tests before and after the education session, Leu said, allowing for measurement of consumers’ knowledge and understanding of the process, and he hopes, setting the groundwork for a continuing process of learning to handle money efficiently.
Is the counseling worth it?
Wellington thinks it could be, because it’ll provide the consumer a clear picture of her financial situation, and help steer her from falling into the same situation down the roa.
“People in the past haven’t bettered their knowledge of financial matters,” she said. “Hopefully, going forward, the education will change that.”
Staff attorney John Rao of the National Consumer Law Center said he sees the counseling requirement as a potential negative, as it will place a greater burden on people who are in dire straits and possibly on the verge of a home foreclosure or similar action.
“I think it’s gonna make people a lot more aware,” said Downey.
She also acknowledged that the credit counseling requirement will be tedious to some debtors who don’t really need counseling, who are not credit abusers or unwise spenders.
“(People) caught in a divorce or with health problems will have to go through a lot more hoops to get relief, which is not fair,” she said.
Reach Rodd Cayton at 473-7107 or rcayton@journalstar.com.