People see advertisements all the time for credit counseling companies. What are your thoughts as a Bankruptcy attorney about credit counseling companies? How helpful are they really to people?

I would advise anyone who is considering a debt payment plan with a credit counseling company to speak with a bankruptcy attorney before they make the decision.  I have quite a few clients who tried a payment plan with a credit counseling company and did not have the results they expected.  Either the payment was higher than they could afford or the relief they were seeking didn’t exist.

For someone who is working on improving their credit score, they need to know that the credit counseling company pays themselves before they start paying the creditors.  This means the debts fall further in default and are reported to the credit bureaus as such, offering no quick boost to a credit score.

Second, creditors do not have to agree to accept the payment arrangement. Then how do you deal with that rogue creditor?

Third, if the debts are dischargeable, it is better to file bankruptcy and rebuild by using credit responsibly after discharge and budget money into savings and retirement.  All the months spent paying creditors are months that could have been building towards the future.

For those who feel the pressure of ‘doing the right thing’ and paying back what they borrowed I remind them that they have probably more than paid the debt when the high-interest rate and other fees are backed out of the equation.  Also, Credit Card Debt was the first type of debt Wall Street securitized.  The companies have been paid and believe it or not, bankruptcy is actually good for the economy.

Some people with certain security clearances will lose their security clearance if they file bankruptcy.  For those, a legitimate credit counseling company may be the best solution or if they only have a few creditors, our office will work on settlement negotiations.

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