HR 975 Could Have Unintended Side Effect, Warns Debt Reduction Expert Gene Jolley

For many consumers, the passing of HR 975, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003, was good news. But Section 106 of the legislation has one personal finance expert worried.

Section 106 of HR 975 requires consumers to have at least looked into credit counseling with an approved nonprofit budget and credit counseling agency before filing bankruptcy," Gene Jolley, founder of Kingdom Financial Principles (http://www.SoLongBills.com) and creator of Rapid Debt Reducer(tm) Software, said today. "That's fantastic, but unfortunately, I think we're going to see more and more fly-by-night debt management services using that legislation to bilk debt-saddled consumers out of what little cash they still have."

Jolley explained that although the legislation requires credit counseling agencies to be nonprofit and approved, the credit counseling and debt management industry is already full of costly scams and shady practices -- leading Jolley to speculate that many firms, approved or not, will begin citing the legislation in their advertising. And in an

industry where desperation causes many clients to leap before they look, some are already paying dearly.

In one case, one of the largest debt management companies in the U.S. collected monthly bill payments from clients but failed to use the proceeds to pay debtors. The company is now facing multiple lawsuits; many of its clients are facing bankruptcy.

So what can consumers do to protect themselves from being ripped off and further damaging their credit?

"First, do the math. Plenty of companies promise to get your creditors off your back and pay off your bills in a year or two. But if you're $60,000 in debt and make $40,000 a year, nothing short of an act of God will take those bills away in two years," Jolley said. "Second, do your homework. If a company looks good, make sure there are no pending lawsuits against them and no complaints on file with the Better Business Bureau. Ask for a list of satisfied clients you can call. If they won't provide one, you have to ask yourself why."

Jolley also pointed out that using any credit counseling or debt management service, even a reputable one, will damage the consumer's credit. For that reason, he said he typically cautions clients to change their spending habits and map out their own budget and debt reduction plan rather than turning to debt management -- no matter how difficult their financial situation may be.

"Debt elimination is 80% behavioral and 20% action," Jolley finished. "Debt consolidation can work out all right, but you must thoroughly research the consolidator, change your spending habits and take the necessary steps to prevent a recurring build-up of debt. Every American should be taking steps to secure their financial future."