Bankruptcy credit counseling gets mixed reviews
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"I think we knew this was going to be a problem. This is an unfunded mandate," says Loonin. "Those who supported this mandate in the first place over-sold what kind of revenues they were going to get from it. The filing fees are already extremely high. Even if you charge everybody the reasonable fee it's not going to cover costs."

And, although the U.S. Trustees office states that it's possible for someone other than the consumer to pay the fee, Michael McAuliffe, CEO of Family Credit Counseling Service in Rockford, Ill., finds some relationships a little unsettling. He says debtors typically find out about the credit counseling provision when they visit their bankruptcy attorney, and some consumers are being convinced that they should file bankruptcy when it's not necessary.

"Bankruptcy attorneys should not have a relationship with the credit counseling agency," says McAuliffe. "There are cases where the bankruptcy attorney is putting the pre-filing and/or post-filing fees into their attorney fee and paying the credit counseling agency direct. This is a revenue stream for the credit counseling agency. It's a major conflict of interest."

"Counseling is required to be adequate, and approved agencies are required to be nonprofit," says Limprecht. She warns "third-party actions that jeopardize adequacy of counseling services will be investigated and can place continued approval at risk."

Consumer advocates also claim that some credit counselors are walking a very fine line when outlining counseling options to pre-filers.

"General information about the strategies is not going to be legal advice," says Loonin. "But the more specific you are in advising any particular strategy to that consumer then the closer you get to the legal-advice line."

Consumer advocates want the government to provide a clear statement to counselors telling them they must not give bankruptcy advice or engage in the unauthorized practice of law.

Limprecht says the U.S. Trustees office has responded. "Non-attorneys are not permitted to provide legal advice, and approved credit counseling agencies are notified of that fact."

Startup glitches: Supply vs. demand
A number of agencies initially approved by the U.S. Trustees did not offer the service in person. Some counselors say most clients prefer the anonymity of the phone and the Internet anyway.

The availability of counseling sparked concerns when the law was enacted. Advocates pointed out more agencies were being approved for the debtor education course than the pre-filing credit counseling; options for receiving the counseling were mostly limited to the telephone or the Internet with very few agencies offering the briefing in person, and, even if the person were to visit the counseling agency for a session, they would have to prepare for a long drive with the agencies few and far between.

Limprecht says the government is trying to fix the problem.

"As of Jan. 1, 2006, U.S. Trustees have approved over 100 credit counseling agencies and over 150 debtor-education course providers," she says. "In the judicial districts overseen by the U.S. Trustee program, brick-and-mortar services are available in all but 10 districts for credit counseling and in all but 11 districts for debtor education."