| Study: A funding gap in bankruptcy
counseling |
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"The grants were offered to
all credit counseling agencies that were approved by the EOUST,"
says Bartlett. "There is no stipulation to how these grants
are used, as long as they are used for legal purposes, but the intention
of the grants was to increase capacity and to help the agencies
start up pre-bankruptcy counseling."
Out of the three ways to receive the counseling --
phone, Internet and in person-- six out of 10 bankrupt consumers
preferred to discuss their money matters on the phone, while 26
percent logged onto the Internet and about one out of 10 met with
their counselor one-on-one.
In any case, the option to meet with the counselor
in person is becoming a casualty as a result of funding losses.
"It costs less to deliver bankruptcy counseling
and education sessions through a remote channel such as the Internet
than through the face-to-face channel," says Keating. "I
believe that we are seeing a growth in the Internet and phone channels
for bankruptcy counseling, as compared to our channel mix for our
regular financial counseling, as a way to manage costs. We do not
know the number of agencies eliminating the face-to-face option
but believe the delivery channel mix over the first five months
is revealing."
The NFCC says options for making up the deficit are
limited, especially since they must provide the service regardless
of the debtor's ability to pay.
Consumer advocate Travis Plunkett, legislative director
for the Consumer Federation of America, believes creditors who supported
the bill need to be more hands-on.
"If this report is true, that they can't really
afford to stay in this business, then we will see agencies start
to pull out," he says.
He indicates that this could lead to many problems,
such as severe gaps in counseling options in those areas of the
country where there isn't a large enough capacity of those needing
counseling to meet the law's requirements.
"If you go to EOUST, there are some national
phone services, but they don't have the capacity to serve all the
bankruptcy filers once the numbers start to increase again. What
if some of the agencies to pull out are national agencies? What
if Money Management or Consumer Credit Counseling Service of Atlanta
pulls out? Then all of sudden we are going to have a serious problem.
The credit card industry behind this requirement will be largely
responsible. If they believe in this requirement, they need to pony
up."
However, while Plunkett believes consumers must have
all three options available so the counseling is effective and first-class,
Barlett says each individual credit counseling agency will have
to weigh its options against what is best for the consumers, what
will provide a quality service and what is best for the bottom line.
Bankruptcy filings soared to more than 2 million
in the weeks before the new law went into effect on Oct. 17, 2005.
The NFCC reviewed data from the past five months in its report.
For the study, heads of member agencies providing the bankruptcy
counseling completed a questionnaire online between March 28, 2006,
and April 3, 2006.
The study revealed an estimated 188,000 American consumers
participated in the mandatory credit counseling requirement at NFCC's
agencies, making up one-third of its financial workload.
The study also noted that more than 132,000 new consumer
bankruptcy petitions were filed during the same period the data
were gathered.
Debtors receiving bankruptcy counseling averaged
unsecured debts of $40,673 and had an average income of just $31,255.
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