The recently passed Bankruptcy Abuse and Consumer Protection Act requires, as a condition of filing for bankruptcy, that all debtors first meet with an approved credit counseling agency. This is designed to ensure that all debtors receive some sound advice regarding money management so that they can avoid having to file for bankruptcy again in the future.

The more you know about anything, the better you will be able to deal with any problems that may arise, and it's no different with personal debt. The US Trustees office approves the agencies, and one would think that by doing so they have eliminated all of the disreputable credit counseling agencies from the mix.

It may not be so, and consumers with problem debt may still be at risk.

The Salt Lake Tribune recently reported that one agency that has been approved by the US Trustees to do business in Utah does not currently meet Utah state requirements for doing business in that state. Utah has moderately strict requirements for such businesses, including posting $100,000 bond and a simple filing to register to do business in the state.

How odd the Federal government would approve an agency that hadn't even bothered to file a simple form to do business in the state! Another agency that was recently approved by the Trustees is now under investigation by Utah officials after numerous complaints from consumers that the agency in question took their money but failed to actually submit any of it to creditors.

As we have pointed out before, the credit counseling industry is one that is full of fraud. People go to these agencies in desperation, seeking a way to avoid losing everything they have. The agencies, in turn, see an opportunity to obtain fees from the consumers as well as a settlement from the creditors, who share a portion of collected funds with the agencies.

It's a rare business opportunity to “double dip” and get money from both sides. In that regard, these agencies are not much different from bookies, who get money from both winners and losers on a bet.

The problem is that many such agencies aren't content with that arrangement and would rather just keep most or all of the money paid to them by their clients. This gets them in hot water with regulators and puts their customers in even deeper trouble with the creditors to whom they owe money.

It would appear that the government isn't being all that thorough with their screening process for “approved” agencies, so it's still very much a “buyer beware” situation for consumers. Your best bet remains to talk to those who have already met with any agency you are considering.

Find former customers and talk to them. Find out if they have had a good experience and take that into consideration before handing over you money to an agency with which you aren't familiar.