Q: What will the new law require of agencies regarding consumers who seek counseling as a prerequisite to filing for bankruptcy?

A: In order to be approved to provide counseling to these consumers, agencies will need to meet the requirements laid down by the Executive Office for U.S. Trustees [EOUST] in its administrative rules.† The industry has been in consultation with the EOUST, and we expect that it may require that an agency is a 501(c)3 nonprofit, that it has been in business for at least one year, and that its counselors are independently certified to meet industry standards. Agencies may be required to pay fees to the EOUST and the bankruptcy courts as part of the approval process.

Q: What challenges will these clients present to counseling agencies?

A: Consumers who come to an agency as a result of the new law will probably have discussed their situation with a bankruptcy lawyer already and be inclined to declare bankruptcy. The agency's job will be to explain the appropriate options available to the consumer, and their financial impact both now and in the future.

Q: Who will pay for these sessions?

A: Recognizing that a majority of these clients will probably not sign on to a debt management plan, which is typically the basis for payment to an agency, the EOUST may allow agencies to charge the consumer a fee to cover the cost of the counseling session.

Q: How will agencies verify that a consumer filing for bankruptcy has received counseling?

A: Agencies will issue a certificate verifying that a consumer has attended the required counseling session, which can take place anytime in the six months prior to the consumer's bankruptcy filing. To ensure that these certificates are genuine, the EOUST will likely require that they be numbered and transmitted from the agency to the bankruptcy court electronically.

Q: What are the primary differences for a consumer between a debt management plan established by a credit counseling agency and Chapter 13 bankruptcy?

A: The management of debt under the two options is quite similar, but with an agency's debt management plan, consumers are required to pay 100% of the principal owed. Under Chapter 13, the full debt is never paid back, but the stigma of Chapter 13 bankruptcy can impact a consumer's financial future.

Q: What impact on the industry do you believe the new law will have?

A: I believe the law will dramatically change the dynamics of the industry. Bankruptcy reform will make "credit counseling" a household word, and consumers will become much more savvy about how counseling works and how to find a responsible agency. This, in turn, will help raise the bar in the industry mdash; a process that is already under way as federal and state governments work to curb those agencies that have abused their role and hurt consumers. Also, as more people encounter responsible agencies, the educational materials provided by these agencies will find a wider audience and improve the level of financial literacy.


* Visit www.aiccca.org for more information about AICCCA.

† The EOUST had not issued its new administrative rules at the time of this interview. On July 5, the U.S. Trustee Program began accepting applications from parties wishing to serve, pursuant to 11 U.S.C. § 111, as approved credit counselors or providers of an instructional course on personal financial management. For more information, visit www.usdoj.gov/ust.