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Credit Counseling or Bankruptcy - Soon You May Have No Choice
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A new bankruptcy law is in effect that makes credit counseling mandatory before bankruptcy filings. In short, bankruptcy filing has been made difficult with the introduction of credit counseling. This means you will need to work with a credit counselor, discuss your debt issues and concerns and work on reducing or debt. You will need some credit counseling paperwork in place to file for bankruptcy. Credit counseling may not be for everyone. For one, credit counseling does not solve the problem of debt if you do not make enough to pay your debts. If you are making a decent income, a little effort on you part and help from credit counselors will put a smile on your face for years to come.
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Credit Counseling or Bankruptcy - Soon You May Have No Choice
If you are looking for a quick debt consolidation than you should be alarmed with the ongoing legislation to severely limit the ability to file bankruptcy in cases where people have the ability to pay.
If not bankruptcy then what? The credit counseling ... which pitfalls millions of unfortunate Americans are already facing.
If the pending bankruptcy bill is enacted, the new law would require people to enter into credit counseling programs prior to filing for bankruptcy. This may cause the already huge credit counseling industry to expand even further... and limit your chances for a quick and easy way out of debt.
Critics are arguing about the outcome of this legislation... Some say that credit counseling ignores the root of the problem: insufficient income to manage existing debt. In contrast, Chapter 7 and Chapter 13 bankruptcies are effective because they address the cause of peoples" financial problems by eliminating or reducing the total amount of debt.
While many criticize this legislation, others think that this would be the right decision. Their argument is that bankruptcy was never designed to be an "alternative to repayment." Bankruptcy should always be a last resort. Debt management plans are designed to be an "alternative to bankruptcy" for those who have some ability to pay.
Well, let's see how do we deal with an overwhelming debt today, when we still have the choice? Unfortunately, millions of people ask this question every year... Today, if you are in financial hot water, you may consider these choices:
- enroll into a debt management plan with a credit counseling agency
- or file for bankruptcy
How do you know which will work best for you? It depends on your amount of debt, your level of discipline, and your plans for the future.
Not all credit counseling agencies are to rob you of your last cash. There are some that won't necessary force you into the debt consolidation program but offer some real counseling first. Then, if you're still unable manage your debt, they'll offer you a program that would be fair and may actually get you out of debt. So having a reputable credit counseling agency in mind, let's compare the options...
Here, Bad Credit Advisor outlines the main differences between a debt management plan (DMP) and bankruptcy:
Credit Counseling DMP
Repay debt - you must repay 100%,
Loose assets - you won't,
Get new loan after - easy when done with DMP (if you can show disciplined timely payments),
Stays on credit report - 7 years,
Fees - Set-up fees and monthly payments,
Creditors calls - May continue,
Duration - An average DMP lasts for 48 months minimum,
Affect FICO score - No (some creditors may report your enrollment but it'll only go as a remark),
Which debt is consolidated - Unsecured only (bills, cards),
Improve bad credit - You may when done with DMP and show timely payments.
Bankruptcy Chapters 7 & 13
Repay Debt - Debt forgiven (Chapter 7), you repay cents on the $ (Chapter 13),
Loose Assets - you may (Chapter 7),
Get new loan after - very difficult and at the highest interest rates,
Stays on credit report - 10 years,
Fees - Attorney's fee,
Creditors calls - Will stop,
Duration - Up to 3.5 months to get Chapter 7 and over 6 months to get Chapter 13,
Affect FICO score - Yes (bankruptcy gets on your credit report under 'Public Records' section),
Which debt is consolidated - Unsecured and secured (including house and car),
Improve bad credit - No, you credit will worsen.
Deciding between a debt management plan versus bankruptcy is difficult because of many factors to consider. When a person in debt, but is making a reasonable income, bankruptcy may not be the option to take.
In any case, one good thing that may come out of this legislation, is that you won't have to make a tough decision... choosing between credit counseling and bankruptcy.
For more information see these resources:
http://www.ftc.gov/bcp/conline/pubs/credit/bbcr.htm
http://www.ftc.gov/bcp/conline/pubs/credit/kneedeep.htm
bad-credit-advisor.com. Please consult your attorney or accountant when deciding between credit counseling and bankruptcy.)
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Choosing Credit Counselors - Do Your Research
I cover things you should look for in debt counselors or a debt counseling service in three previous articles: Credit Counseling And Credit Card Debt-Know Your Rights, Trying To Eliminate Credit Card Debt? Things You Need To Know and Which Debt Management Service Is Right For You?
This article is going to cover doing your research before making a final decision. Depending on how much debt you have and the amount of the payment you will be able to make comfortably each month, your relationship with this company can last anywhere from 2 to 5 years. Pick a debt counseling service with debt counselors you can see yourself working with long term.
Don't pick a debt counseling service that only offers debt management programs and nothing else. Choose one that will also advise you on how to manage your money, will help you to develop a budget, come up with a personalized plan of action to help get you out of your current situation and also educate you on the ways to avoid this situation in the future.
Don't waste your time with any company that asks you to send them money for an information packet that lets you know about them and the services they offer. That's a sure sign that something is wrong if they will not freely provide this information to you.
You can find debt counselors through the yellow pages, the internet, television ads, or local offices. Some credit unions and financial institutions offer debt counseling. Also universities, military bases, and housing authorities offer credit and debt counseling services.
Word of mouth is also a good starting off point. Ask friends and family if they have had any experience dealing with debt counselors or if they know someone who has.
Research, Research, Research
I cannot stress the importance of this enough. There has been such rapid growth in the debt management industry in the last few years. More and more people are going into debt management programs and filing bankruptcy every year. The Federal Trade Commission says that the fastest growing area of filed complaints is is the debt management industry.
There are alot of unscrupulous people out there just waiting to prey on people who are knee deep in debt and not sure where turn for help. They sound sympathetic and understanding, they have all of the right answers an they tell you what you want to hear. They have alot of practice and they are very good at what they do (scamming people). If you don't take the time to do your research you could possibly end up doing business with one of them.
Once you have your list of debt counselors compiled, you need to start your research by contacting these sources:
The Better Business Bureau
Your State Attorney General's Office
Your local Consumer Protection Office
The reason to start your research for debt counselors with the BBB is if a business has an unsatisfactory rating or alot of unresolved complaints with the BBB, there is no reason to check them out with the other places. Just skip to the next one on your list.
The Better Business Bureau
The BBB is a national organization which is dedicated to fostering fair and honest relationships between businesses and consumers, by instilling confidence and contributing to an ethical business environment. It's members have agreed to maintain fair business practices and use certain procedures to resolve customer complaints.
The BBB's services include:
Business Reliability Reports
Resolving disputes
Truth in advertising
Consumer and business education
Charity Review
If a business has a satisfactory report from the BBB it means that they have not had an unusual amount of complaints in the last three years and they have dealt with customer disputes properly and in a timely manner.
Business Reliability Reports are available online for free and give you the chance to see if a company has dissatisfied clients. BBB reports are available for member and non-member businesses.
How To Do A BBB Search
Go to http://search.bbb.org/search.html. Enter the name of the company and the state it is in for the debt counselors you wish to check out. You can only do one search at a time. There are search tips posted on the page to help you.
Once you have the information, you can then contact the local BBB that published the report, if you have further questions. That information will be listed at the top of the report or you can do a search at http://lookup.bbb.org to find the local BBB.
While it would be good to find a company without any complaints, due to the rapid growth in the debt management industry and the increase in the amount of people who use debt counselors, it is unlikely to find many of these companies without any complaints.
If there is a company that you wish to use that does have a few complaints, as long as they resolved those complaints in a satisfactory and timely manner, they will have still have a satisfactory rating from the BBB and would be worth checking out. If a company has numerous unresolved complaints, skip it and go to the next company on you list.
Just because a company does not have any complaints filed with the BBB, does not mean you should stop your research there. Some people are reluctant to file complaints with the BBB because it is not a government agency. It is supported by it's members through membership dues.
More Research
Next, you should check your list of debt counselors out with you local State Attorney General's office. You can find the list of Attorney Generals by state here: http://www.naag.org/ag/full_ag_table.php.
You should be able to find out if the company is required to to be licensed to operate in that state and whether or not it is, and if there are any complaints, investigations, or lawsuits pending against them.
Last, you should check with your local consumer protection agency. You can find a list of the State, County, and Government Consumer Protection offices here: http://consumeraction.gov/state.shtml.
Consumer Protection Offices provide consumers with important services. They mediate complaints, conduct investigations, prosecute offenders os consumer laws, license and regulate a variety of professionals and promote strong consumer protection legislation.
City and County offices are familiar with local businesses, local ordinances and state laws. If there is no local office in your area, contact your state office.
I know this seems like alot of work, but this is the best way to make sure you don't end up with one of those unscrupulous "debt counselors" I mentioned earlier. You will be giving these people your personal financial information, they will have your account numbers once you start working with them. You have to make sure you are giving your business to a company you can trust.
Choosing the right debt counseling service with good debt counselors can make this process less expensive for you (some companies charge excessive fees), and more of a learning experience which will give you the tools you need to make sure this doesn't happen to you again. Now isn"t that worth a little extra time?
The next article, which will be comming soon, is going to be about interviewing debt counselors. It will have a list of questions you need to ask them.
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