Grades Credit Counseling Debt Relief with an "F" Amid High Bankruptcy Rate

Share Article reports that credit counseling is giving unrealistic debt relief to bankruptcy prone Americans. In November 2010, over 1.6 million personal bankruptcies were processed and creditor counselors’ debt management plans are failing consumers with basic interest reduction and high monthly payments. People buried in debt are warned to seek a stronger bankruptcy alternative.

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The insignificant creditor concessions in a DMP barely change the minimum payment to an amount between 2.2% and 3.2% of the consumer's total debt

Most of them advertise as BBB certified non-profit debt relief saviors, claiming to save consumers from the jaws of bankruptcy with financial education and a Debt Management Plan (DMP) that works out reduced interest payments with their creditors. But, credit counselors are increasingly failing Americans as a bankruptcy alternative. grades credit counseling with an "F" based on the nation’s steep bankruptcy filings.

The news arrives amid backlash from the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

The law took effect in October 2006 after creditors lobbied Congress to toughen bankruptcy laws. It aimed to decrease bankruptcies by making it harder for Americans to file for Chapter 7, which discharges most debts. But, according to statistics released today by the Administrative Office of the U.S. Courts, ending in September 30, 2010, 72% of all filers petitioned for Chapter 7 while only 28% petitioned for Chapter 13, which establishes a court-ordered debt repayment plan.

The law also imposed a deterrent, requiring consumers to get counseling from a credit counseling agency prior to getting bankruptcy approval. Yet, the country has been rattled by an increasing bankruptcy rate. According to the Administrative Office of the U.S. Courts, the country hit 1.5 million personal bankruptcies in 2009 and 1.6 million by November 2010. These numbers are the highest since 2005, when over 1.7 million filings originated prior to the new law’s harsher filing requirements.

Seeing one in every 160 Americans presently filing bankruptcy, it’s easy to blame the housing crisis and high unemployment. However, a report from the National Association of Consumer Bankruptcy Attorneys also points to the inefficiency of credit counseling. From the pre-bankruptcy fillers seen by credit counseling firms, the report shows that 97% were unable to repay any debts via a DMP.

Apparently, credit counselors had their hands tied for many years. In a 2001 survey, Consumer Reports found that just 21% of their clients completed a DMP. Even the National Foundation for Credit Counseling reported the DMP completion rate as lows as 26%, but why?

Eric Santacruz of explains: “Regrettably, credit counselors recoup as much money as possible for creditors, but their unrealistic budget requirements are not based on what consumers can afford to pay.”

Generally, Santacruz has heard consumers drop out of a DMP complaining that the DMP only managed to shave interest rates by a few points and was unable to eliminate or reduce late fees and over limit fees.

"The insignificant creditor concessions in a DMP barely change the minimum payment to an amount between 2.2% and 3.2% of the consumer's total debt", adds Santacruz.

Consequently, the minimum payment on a $20,000 credit card balance can actually increase from $600 (3%), to $640. At best, it may be lowered to $440. In either case, it causes the budgets of families with seriously impaired household incomes to be scarcely fixed.    

In the race against bankruptcy, Santacruz suggests to people buried in mountainous debt, to quickly explore for a fast and affordable debt relief solution.

For nearly five years, his company Debt Free League has rivaled the benefits offered by credit counselors with considerably stronger and faster debt reduction.

The company’s site, helps the public to freely compare debt relief choices, including bankruptcy, debt negotiation, debt consolidation, tax settlement, and student loan consolidation.

Unlike credit counselors, helps people make an informed decision on a bankruptcy deterrent most suitable to their financial needs.

The objective of the service provided by Debt Free League is to position consumers in a financial hardship to avoid bankruptcy. The site allows people to compare and find the most convenient debt relief amongst bankruptcy, debt negotiation, tax settlement, debt consolidation, and student loan consolidation. They also provide Spanish assistance at Consumers may call 1-800-213-9968 for a free debt evaluation.


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