Debt Relief Industry

According to the IRS it Appears Credit Counseling Should be Talking About Debt Settlement

A friend forwarded me a copy of the Core Analysis Tool (CAT) the IRS auditors use to review IRS 501(c)(3) non-profit credit counseling organizations.

As part of that document the IRS states what to look for when evaluating credit counseling sessions.

They say:

“Information about what counselors do in sessions with clients can generally be found from a number of common sources. In an exam setting, the most detailed and probative information will come from tapes or transcripts of the actual sessions and client files showing the information collected on specific individuals. Also helpful can be generic scripts or questionnaires intended for use generally with clients, instructions given to clients on what to bring to an interview, other forms used with clients, training materials that instruct counselors on what to ask, and interviews with counselors or their supervisors describing what they are expected to ask.”

The examiner is directed to look for the following:

Counselors interview clients about their budget and finances, discussing topics including their employment, education, buying habits, significant expenditures, and any significant past or anticipated changes in their earnings, assets, expenses and liabilities, including the reason or cause for those changes.

When considering whether counselors collect complete financial information, look for evidence in the organization’s forms, transcripts of telephone calls, and elsewhere that clients are asked to provide detailed information about:

  • The type, amount and source of current and expected future income
  • Their assets
  • Their monthly and annual expenses
  • Secured debt such as mortgages and car loans debt
  • All kinds of unsecured debt, including student loans as well as credit cards
  • Other liabilities such as child support, alimony, tax liabilities.
  • Their employment
  • Their education
  • Buying habits
  • Significant past or anticipated changes in earnings, assets, expenses, and liabilities, including the reason
  • Health and other life issues that may affect their financial situations.

So here is the critical part.

Based on this information, counselors develop and present to clients a number of options and strategies for addressing their debt problems, including creating and maintaining a budget, establishing debt management payment plans with creditors, negotiating directly with creditors on payment or interest rate relief, and filing for bankruptcy.

When considering whether counselors present a full range of options to credit counseling clients, seek evidence from training materials, transcripts of counseling sessions, and other sources that the counselors:

  • Coach clients on negotiating directly w/ creditor in appropriate cases.
  • Discuss mechanics and advantages of creating and maintaining a budget.
  • Recommend changing buying habits or strategies for saving money.
  • Discuss custom-designed payment plans.
  • Present advantages and difficulties of all options including bankruptcy, DMPs, self-administered payment plans.

Debt settlement is a negotiated plan with creditors and it certainly appears that the IRS is looking for that as a possible solution, so why are credit counseling groups not educating consumers about how to negotiate their own debt settlement solution like those offered by Consumer Recovery Network or

Could it be because creditors that control funding to credit counseling groups don’t want them to and have told them so?

If you’d like to read the entire CAT instructions, click here.

I can always use your help. If you have a tip or information you want to share, you can get it to me confidentially if you click here.

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About the author

Steve Rhode

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.


  • So the reason CCCS company’s don’t offer Debt Settlement now is?  Is it because they are receiving fair share and can’t?

    • Let me qualify “can’t.”

      The credit counseling departments at the major banks have made it clear that credit counselors are not to help consumers with settling their debt, even if appropriate, or they risk losing their fair share commissions.

      Credit counselors are prohibited to by the very banks that routinely do accept settlement offers from for-profit firms and lawyers.

      Credit counseling won’t speak openly about this out of fear.

    • The banks have them by the short & curlies and none are brave enough to stand up and fight.  
      They could offer a far superior product than they do, yet they choose the easy path.  

  • Thanks for highlighting this key point again. Perhaps when the fair share is finally reduced by the creditors to zero, then the light-bulb moment will finally occur. Meanwhile, there is a gentle way for such firms to begin without rocking the boat with creditors. For any prospective client who is not a good fit for a DMP and would be a better fit for debt settlement, why not simply offer a training course to educate the consumer on the settlement option? I am ready and willing to discuss licensing arrangements for my course content, which would enable a debt relief firm to hit the ground running by offering DIY material to candidates for the settlement strategy. This is not rocket science people!

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