New Laws Require Mandatory Bankruptcy Counseling

The most sweeping changes to the nation's bankruptcy rules in a quarter century take effect Monday and make it tougher to file certain types of bankruptcy. Among other measures, the new laws require mandatory credit counseling before filing for bankruptcy, which has been getting mixed reviews.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

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And I'm Robert Siegel.

Starting today, it is tougher to file for bankruptcy. New rules have gone into effect. They're described as the most sweeping changes to bankruptcy in a quarter-century. As NPR's Jack Speer reports, one provision requires credit counseling before a person can file for bankruptcy.

JACK SPEER reporting:

Last week, courts were filled as consumers rushed to beat the new bankruptcy rules. The new law requires some people who previously might have been able to have their debts erased in bankruptcy to set up a repayment plan; it also requires mandatory credit counseling. Susan Keating is president and CEO of the National Foundation for Credit Counseling, a non-profit group that sets national credit counseling standards. She likes the provision requiring credit counseling for filers.

Ms. SUSAN KEATING (President and CEO, National Foundation for Credit Counseling): This is about educating consumers so that they can make a serious financial decision that has consequences.

SPEER: But others question the credit counseling requirement. Travis Plunkett is legislative director with the Consumer Federation of America. He says at a time when a number of consumer credit agencies are being investigated for alleged deceptive practices, requiring such counseling makes little sense.

Mr. TRAVIS PLUNKETT (Legislative Director, Consumer Federation of America): There are a number of serious problems with unscrupulous credit counseling agencies that actually harm consumers. This is the time Congress has chosen to require a million and a half to two million people to seek credit counseling.

SPEER: Among the allegations being examined by the IRS and some states' attorneys general is whether credit counseling firms provide sufficient consumer education programs or simply push people into debt-management plans, for which they then charge a fee. There have also been complaints that because many credit counseling services receive a substantial part of their funding from credit card companies, the industry may be more beholden to creditors than to consumers. But Steve Bartlett, president of the Financial Services Roundtable, a group that represents the card companies, says only services that receive Justice Department approval will be allowed to participate under the new law.

Mr. STEVE BARTLETT (President, Financial Services Roundtable): Credit counselors that are being certified by the Justice Department are required to be true non-profits. That's a good thing. And it always startles me that somebody would object to a good thing being introduced into the law.

SPEER: Experts say it's still too early to know how well the counseling provision will work. One concern has been that as more people begin filing for bankruptcy under the new law, counseling firms could find themselves faced with a shortage of counselors. Susan Keating with the National Foundation for Credit Counseling says they're addressing that.

Ms. KEATING: We see that our counseling services will more than double over the course of this next year. We've been hiring and training additional counselors and making sure that they are available. And every one of our counselors is actually certified, which is an important distinction.

SPEER: So far the Justice Department has approved just over 40 applications from credit counseling firms out of several hundred it's received to take part in the program. Officials with the Federal Trade Commission say consumers picking a credit counseling firm should ask a variety of questions, including what fees are involved and whether provisions are in place for those who can't afford a fee. Jack Speer, NPR News, Washington.

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