Should Credit Counseling Be Removed From Bankruptcy?


Dear Steve,

My question is about credit counseling courses.

What are the chances this bill will pass and credit counseling done away with?



Dear Don,

I believe you are referring to a proposed bankruptcy law that would adjust the current bankruptcy law and do away with the requirement for bankruptcy credit counseling.

I think the odds are unknowable.

The inclusion of the credit counseling requirement was BS when it was first proposed. At the time, I was making frequent visits to Capitol Hill to fight for consumers in bankruptcy reform.

As I told lawmaker staff at the time, there is no need for this requirement.

I subsequently received a call from a large credit counseling company telling me to back off. This would be free money for them because they would get leads to sell debt management from people being sent to them for pre-bankruptcy counseling. I hope never to forget the guy saying, “this is a free way for us to separate the wheat from the chafe for new clients.”

As time marched on, my predictions were on target, and the bankruptcy counseling never became a client maker for credit counseling. I mean, how many people already committed to a bankruptcy approach were going to change their mind once they were sold on bankruptcy? Not that many.

At the time of all this, I was running a credit counseling company, and it still did not make sense. Add onto this the idea that post-bankruptcy counseling was required to get the bankruptcy discharge. It was all non-sensical, stupid, and a waste of time for consumers and credit counselors.

I’d love to see the requirement go away.

The lesson I learned from my time on Capitol Hill trying to inject commonsense into bankruptcy reform just solidified something my father always said to me, “The two things you never want to see being made are sausage and laws.” He was right.

I have no idea what will happen behind closed doors if the proposed bill moves ahead, as it should.

It will come down to two factors. First, do creditors perceive the required credit counseling keeps people out of bankruptcy and returns more money to creditors. Second, two will credit counseling groups fight to keep the requirement because they don’t want to lose the free lead-generating business.

I’m more cynical than hopeful on this one.


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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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