Beware Credit Counseling

Commercial advertisements for credit counseling services are sprouting up like weeds. One television commercial for credit counseling tells viewers that they “should not even think about bankruptcy.” Now as a general rule, I think it is probably not a good idea to hire anyone who advises you not to think. More specifically, it is worth asking why a credit counselor doesn’t want you to think about bankruptcy. The answer is that if you think about the pros and cons of bankruptcy versus the pros and cons of credit counseling, you will probably come to the conclusion that bankruptcy is the better choice.

Consumers should understand that many credit counseling services are simply “fronts” for credit card companies trying to take more of your hard-earned money. Many credit counselors are paid directly by the card companies, and they may also be paid on a commission basis. That means that the credit counselor only gets paid if they get you signed up to their program. So they have a financial interest in getting you signed up, even if it is not the best option for you. Don’t be fooled simply because a company claims to be a “non-profit.” Recent investigations have shown many credit counseling services to be nothing more than scams. You can read more about these abuses here and here.

As an experienced bankruptcy attorney, I urge my clients to get all the information and then think about what course of action works best for them. For some clients, credit counseling may indeed be a better option than filing for bankruptcy. Other clients cannot be helped by either approach. The field of loss mitigation is highly complex and every day it gets more complicated. People in financial turmoil need to understand all the options. These may include credit counseling, Chapter 7 bankruptcy, Chapter 13 bankruptcy, and debt settlement. Homeowners must understand additional options such as loan modification, forbearance, and deeds in lieu of foreclosure.

That is why I urge people to have a consultation with an experienced loss-mitigation attorney before deciding what to do. Ask the attorney about all the options available to you. Ask about the pros and cons of each option. Try to educate yourself as much as possible before you meet with an attorney so that you will know which questions to ask. Having an experienced attorney is very important, but nothing is more valuable than understanding your options. Knowledge is power, especially in such a complex area of law. You may be in financial trouble, but you still have the right to be treated with fairness, honesty and respect. If you are experiencing money problems, the best advice is to get informed.