This week, I have been discussing the number of services that are advertised as alternatives to bankruptcy, but often cause even more harm for a number of desperate consumers already facing hard times. The last groups that I wanted to touch on this week are credit counseling organizations, which should not be confused with the counseling required before filing Chapter 7 or Chapter 13 bankruptcy.
The Federal Trade Commission notes that “many credit counseling organizations are nonprofit and work with you to solve your financial problems,” but still cautions consumers aware that “just because an organization says it’s ‘nonprofit,’ there’s no guarantee that its services are free, affordable, or even legitimate.” The FTC notes that some organizations “charge high fees, which may be hidden, or urge consumers to make ‘voluntary’ contributions that can cause more debt.”
The main problem with credit counseling is that it simply cannot work for everybody. Some consumers are simply too far in debt or now have too little income to make a plan work. While credit counseling can provide a boost to credit scores of those who are able to determine a plan that works, credit counseling does not end harassment from creditors whose participation in debt management plans is completely voluntary.
Another problem with credit counseling is that you may end up on a budget that places you at significant risk of defaulting on a plan if any unexpected event, like a job loss or a sudden unforeseen expense, compromises your entire budget.
A Chapter 7 or Chapter 13 bankruptcy takes many of these disadvantages into consideration and protects consumers so they can receive a fresh start. I certainly encourage people to consider legitimate credit counseling organizations that have favorable reputations with the Better Business Bureau. For those who are just too overwhelmed with debt to continue struggling to make their monthly payments, filing personal bankruptcy may be the last resort, but it is also a resort where you can best find the fresh start you truly need.