Bankruptcy
Counceling required before filling
Upcoming changes in bankruptcy laws include provisions that force people seeking bankruptcy protection to get financial counseling
BY
EILEEN ALT POWELL
Associated Press
October 2, 2005
Separated from her husband and struggling
to buy food and other necessities for herself and two daughters, Bridget Glover
watched in horror as her credit card bills mounted. She thought filing for bankruptcy
would be the only way out.
''I even got second jobs, but that wasn't enough,'' recalled Glover, a benefits
coordinator from Wheatley Heights, N.Y.
``Every time I had to pay bills, I would pull out my checkbook and cry. I couldn't
answer the phone because I knew it was bill collectors.''
Instead of bankruptcy, Glover sought help from a nonprofit
credit counseling agency and worked out a debt repayment
program. Three years later,
she's nearly finished; her next step will be applying for a mortgage for a new home.
Stories like Glover's are a reason nonprofit credit counselors are being given a
greater role in the bankruptcy process.
Under a federal bankruptcy law that takes effect on Oct. 17, debtors must take part in a credit counseling session in the six months before filing bankruptcy applications,
paying as much as $50 for a 90-minute session. The law also mandates that many complete
a financial education course before their bankruptcies are final, and some of these
courses will be handled by credit counselors as well.
OVERLOADED
The counseling requirement is expected to double to 3 million the number of Americans
seeking help each year from nonprofit credit counselors, straining an industry already
grappling with funding problems and investigations into whether some agencies abused
their not-for-profit status.
Joel Greenberg, president and chief executive officer of Novadebt in Freehold, N.J.,
which helped Glover, said it remains unclear how many people will be able to avoid bankruptcy through counseling.
' 'We expect that many of these people will be in very deep trouble by the time
they come to us,'' Greenberg said.
Ideally, credit counseling should be done in face-to-face sessions. But because
of the increased load, the law also will allow phone counseling and Internet counseling.
This has led some consumer advocates like Liz Pulliam Weston, author of Deal With
Your Debt, to suggest Americans facing bankruptcy will be subjected to ''drive-through
counseling'' that will do little to re-educate them about good spending and borrowing
habits.
And many financially troubled consumers have never developed
money skills, said Howard Dvorkin, president of Consolidated Credit Counseling Services
in Fort Lauderdale.
''For many of these people, this
could represent the most time they've ever spent
in their lives focused on their personal finances,'' Dvorkin said.
Counselors will help them analyze their spending and work out a budget. Some people
are likely to need the counselors' help in negotiating with creditors to get a manageable
debt repayment program going.
Still, Dvorkin acknowledged, ''it's going to be a huge challenge to deliver these
services effectively and efficiently'' to those coming in just one step ahead of
bankruptcy.
CHANGING ATTITUDES
''If you want to change attitudes and outcomes, you need face-to-face contact,''
Weston said. ``And you need time.''
But that kind of counseling can be expensive, and many of the counseling agencies
already have funding problems.
Credit card companies and other lenders have reduced the amount of money they give
agencies that work out repayment programs for debtors, and the agencies also are
competing for donations with other worthy nonprofits.
Susan C. Keating, head of the National Foundation for Credit Counseling
in Silver Spring, Md., an association of nonprofit counselors, said she believes the law ``is recognizing publicly for the first time the value of counseling and
education for consumers.''
The intent, she added, is for in-depth counseling ``so that ultimately the consumers
will be able to make a more-informed decision about what route is best for them.''
At the same time it's preparing to deal with the new law, the counseling industry
is grappling with several investigations. The Federal Trade Commission has gone
after a number of agencies for deceptive practices, including failure to pass on
money they collected from debtors to creditors.
