The recently passed bankruptcy law known as the.Bankruptcy Abuse and Consumer Protection Act was intended to make it harder for consumers with debt problems to file for bankruptcy protection. It was also intended to keep the credit card companies profits as high as possible, as that industry suffers the most from bankruptcy filings. An additional “benefit” to this legislation is to provide financial counseling to those who need it.



“Those who need it” is defined in the new law as everyone. Counseling will now be a mandatory prerequisite for anyone considering a bankruptcy filing. The theory is that by offering financial advice to those who have problem debt, repeat filings can be avoided. That's helpful, as many Americans don't get sufficient financial education in our schools. There is just one problem with this requirement - it's largely undefined.

The credit counseling industry has been suffering some recent hardships as the Internal Revenue Service and the Federal

Trade Commission investigate fraud that seems to run throughout the industry. The most frequent complaint is that many agencies which claim to be nonprofit are actually subsidiaries of for-profit companies. Some of these “nonprofit” groups have been encouraging their clients to consolidate their debts using repayment plans that involved the for-profit companies, which leave the motives of the nonprofit agencies in question. As these matters are being investigated, this new legislation requires consumers to seek help with their debt problems, adding to the general unease associated with seeking help. Unfortunately,

Congress left this portion of the legislation rather vague. Yes, counseling is required, but with whom? Can anyone who calls themselves a counselor qualify? The bill doesn't say, although the US Trustees office is accepting applications from companies that wish to be approved. May fees be charged? Yes, the bill says that such fees may be “reasonable” but doesn't say what that means and adds that counseling must be provided even if the debtor cannot pay.

Who must pay for the counseling? Will the debtors pay themselves, or will taxpayers foot the bill? Or the creditors? While it is generally assumed that these matters will be worked out by October 2005, when the law takes effect, some in the industry are concerned that some debtors simply won't bother. Instead of seeking counseling, they may just let their creditors chase them in hopes of collecting payment.

That's the last thing anyone wants, so it would be in the best interests of all Americans for the Government to define as many aspects of this legislation as possible before the deadline. It would also help if these issues, once resolved, were advertised sufficiently that anyone who was considering a bankruptcy filing would know what to do. Given the way Congress works these days, that may be asking a lot.