 By Broderick Perkins
The new federal bankruptcy law helps take some, but not all, of the guesswork out of choosing a debt counseling service--also called a credit counseling service.
The new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), effective Oct. 17, 2005, requires that all individual debtors who file bankruptcy must undergo debt counseling in an individual or group session within six months (180 days) before filing for bankruptcy relief. Also, bankrupt debtors must complete a more involved "instructional course in personal financial management" before debts can be discharged.
The bankruptcy law makes it easy to find accredited debt counselors and personal financial management programs because, under the law, bankrupt consumers can only use a U.S. Bankruptcy Court-approved debt counseling agency or debtor education course to comply with the new law's provisions.
Federal approval comes only after counselors meet stringent requirements for experience, financial security, corporate status, bonding and bankruptcy related curriculum, among others. The court keeps an updated state-by-state list of approved agencies and providers.
The Federal Trade Commission, however, goes a step further to help you pick the cream of the crop with some simple guidelines.
The guidelines were established years before the new law took effect because too many debt counseling services had come under fire from the feds and consumer advocacy groups for misleading consumers, overcharging them and misappropriating funds, among other charges.
While the U.S. Bankruptcy court's approved list of counselors is a good start, it's not a bad idea to go down the list and look for operations that also have state and or trade association registered or certified counselors and or curriculum as an added layer of protection.
Some states, like California, offer regulations to protect consumers from gouging and other illicit practices and mandate that debt counseling and related services operating in their state register their operations, provide certain consumer disclosure statements and post surety bonds, among other requirements.
Trade groups, including the National Foundation For Credit Counseling and the Association of Independent Credit Counseling Agencies, mandate members adhere to certain ethical practices and business operating standards that have worked their way into some state regulations.
For example, trade groups require members to offer one-on-one personal counseling because they believe it is more effective. The federal law does not mandate one-on-one counseling, but scrutinizes counseling and courses available to groups, online, by telephone or by other means before they are federally approved.
Beyond federal approval and state and trade regulation and affiliation, the FTC advises:
Reputable debt counseling organizations, with trained and certified counselors, generally advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops.
After discussing your entire financial situation with you, they will help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour. Follow-up sessions are offered.
Good counseling agencies should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If that doesn't happen, go elsewhere--even if the firm is federally approved.
Once you've developed a list of potential counseling agencies, check them out with your state government's regulatory authority or attorney general, local consumer protection agency, Better Business Bureau or other agency keeping tabs on debt counselors.
Also:
* Look for an organization that offers a range of services, including budget counseling, and savings and debt management classes that help you develop a plan for avoiding future debt problems. Avoid organizations that push a debt management plan as your only option before they spend a significant amount of time analyzing your financial situation.
* Get any specific price quotes in writing. Don't sign anything before reading it. If you don't understand the contract's language seek help from social agencies, community groups or professionals you trust.
* Debt counseling agencies are typically nonprofit agencies. That doesn't mean they won't charge you a fee, but you can always look elsewhere for help. Under the bankruptcy law, approved counselors can't reject you for an inability to pay.
* Choose an agency with a privacy policy you can live with. Your information should be kept confidential and secure.
* Avoid firms with employees who are compensated based on what services you buy, fees you pay or contributions you make to the organization.
For more see The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 at http://www.uscourts.gov/bankrupt
cycourts/bankruptcybasics.html.
Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.
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