Bankruptcy and Credit Counseling - New Law Dictates Mandatory Classes

When the president signed the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" into law, the common notion of bankruptcy was changed forever. Not only does the law limit who can file a traditional bankruptcy, it also requires that would-be filers take classes in credit counseling and budget management. But many consumer advocates question the wisdom and effectiveness of these mandatory classes, and wonder if there could be ulterior motives for requiring them.

Mandatory Credit Counseling - A Good Idea?

Under the new law, potential bankruptcy filers must enroll in government-approved credit counseling courses six months before they are eligible to file bankruptcy. These classes are supposedly designed to inform people of the options they have concerning their debts, but many experts question the interest and objectivity of the class providers. Are they really interested in helping people make the best decisions, or are they just in it for the $50 per-student enrollment fees? Do they really give unbiased advice, which may include the option of bankruptcy, or do they have an incentive to encourage debtors to pay as much as they can to creditors, regardless of the personal toll? After all, many of these credit counseling agencies are "nonprofit" wings of the credit card companies to which their students owe money, so how objective can they be?

More importantly, there is the issue of timing. When someone has finally made the decision to file bankruptcy, is this the right time to give him or her credit counseling? Most people who will be enrolling in these courses will have their minds made up that bankruptcy is their only way out, so these courses do little more than pad the income statements of the companies providing them. In order for credit counseling to work, it needs to be voluntary, not mandatory; and it needs to take place long before you become so desperate that bankruptcy is viewed as your only escape.

Budget Management - Who's Teaching Who?

While you have to take a credit counseling class prior to filing bankruptcy, you also have to take a budget management course in order to "graduate" and make your bankruptcy official. The problem with these courses is that they can be taught by a wide variety of "professionals" who may or may not be financial experts. In fact, many of them may be just as financially distressed as their students!

Certified financial planners and CPAs are among those who can design and administer these budget management courses, but you have to ask yourself what kind of CFP or CPA needs the headache that teaching these classes undoubtedly brings? Do they just need the money? Are they financially distressed themselves? Worse yet, any certified teacher can also teach the class. So just because Timmy's kindergarten teacher knows 2+2, she can supposedly help you learn how to stay out of debt - or at least, the government thinks so.

The Truth About Credit Counseling

Credit counseling is an extremely valuable service to people who voluntarily seek it out. Forcing people to take these courses once they've made up their minds to file bankruptcy is bordering on unconstitutional, on the grounds of it being "cruel and unusual punishment." In reality, the new bankruptcy law was written by the credit card companies and their lobbyists, and these mandatory classes are just another obstacle put in your way to discourage you from filing bankruptcy. Instead of waiting until a credit counseling session is mandated by law, seek one out on your own. Learn more by browsing Debt Relief USA and determine whether it is right for you.

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