mandatory credit couseling on new law

[okane]

Anybody know how credit couseling companies work? I heard that they have a set agreement with each creditor on lower interest rates but the monthly payments are not really affordable for people that have lot of debt and have no disposable income. Any additional info?

[StaciMM]

Most credit counseling agencies/debt management programs have a monthly payment between 2-3% of the balance (depends on who the creditor is) and interest rates typically go to somwhere between 6-9%. Some creditors do eliminate interest completely. If your income barely covers your rent & living expenses, you're right-it won't help.

I really am curious to know more about what is intended with the new law. I've heard the term 'an approved credit counseling course'. Not everyone can manage a DMP payment-the amount is determined based on who the creditors are and what the balances are so there is normally no 'negotiation' involved. And, if the wording is correct that it is a 'course' I would assusme that education is the key point. And, in all honesty, if so then that is the one part of the new agenda that is smart. Educate yourself before BK so you don't end up back in the same boat a couple of years from now. (I would go so far as to say that 98% of those on these boards are doing that of their own initiative. The other 2% are probably looking for ways to beat the system.) For this 'course' though-does this mean a 3 hour lecture, or 6 months worth of Saturdays? Or is it speak to a DMP and if your income 'qualifies' then you have to be in their program for so many months before you can file, or if you don't 'qualify' do you get a 'do not pass go-head straight to BK' card.

Anybody know how credit couseling companies work? I heard that they have a set agreement with each creditor on lower interest rates but the monthly payments are not really affordable for people that have lot of debt and have no disposable income. Any additional info?

[HHM]

The new bankruptcy law does not require you to sign-up with a credit counseling service, but it does require you to have a consultation with one.

It will be interesting to see how this plays out, I can envision some trustees or creditors wanting to find out what was said at those consultations and see if the CCC agency would have been able to put the debtor on a plan.

We shall all wait and see.

[StaciMM]

Well, here is one viewpoint (thinking as I go-hope this makes sense)...

Since the new laws will make a shift in the % of 7 & 13 filings (now mostly 7's but soon will be mostly 13) and the new 13's will see a higher % paid to unsecured debt due to the limited expense options & mandatory 5 year terms, I foresee that credit counseling will become the alternative of choice for people who aren't facing foreclosure/reposession, past due taxes, etc. If they wouldn't be paying that much more in a CC program than in the 13, they might as well go w/ the CC program and in the end their accounts would all show paid in full/paid as agreed rather than BK.

The new bankruptcy law does not require you to sign-up with a credit counseling service, but it does require you to have a consultation with one.

It will be interesting to see how this plays out, I can envision some trustees or creditors wanting to find out what was said at those consultations and see if the CCC agency would have been able to put the debtor on a plan.

We shall all wait and see.

[InDebtInMD]

My wife and I went to CCCS prior to filing bankruptcy. The counselr there went through our expenses with us, and then wnet through the bills. He demonstrated to us there there was no way we would be able to make a DMP work, thus he recommended we consult with a Bankruptcy attorney.

I related all this to the US Trustee who showed up at our 341 and she seemed satisfied that we went that route.

[HHM]

Well, here is one viewpoint (thinking as I go-hope this makes sense)...

Since the new laws will make a shift in the % of 7 & 13 filings (now mostly 7's but soon will be mostly 13) and the new 13's will see a higher % paid to unsecured debt due to the limited expense options & mandatory 5 year terms, I foresee that credit counseling will become the alternative of choice for people who aren't facing foreclosure/reposession, past due taxes, etc. If they wouldn't be paying that much more in a CC program than in the 13, they might as well go w/ the CC program and in the end their accounts would all show paid in full/paid as agreed rather than BK.

Perhaps, but I think you are overlooking the main difference between DMP's and Chapter 13's...in DMP's you have to pay off the entire balance owed to your various creditors (sometimes even with interest), whereas under chapter 13 (even under the new law) you only pay your disposable income for 3-5 years...any remaining balance owed to your creditors at the end of the plan is discharged.

Thus, I really don't think it will greatly expand the use of DMP's through Credit Counseling Agencies because those that can afford to take advantage of DMP's are generally not candidates for bankruptcy and those that go into bankruptcy (even chapter 13's) generally could not have afforded the DMP.

[Kam]

DMPs are a joke!

We attempted a DMP for 3 months through Care One. We were led to believe (at least by the tv advertising) that creditors will reduce or waive OTL fees, past due fees, lower interest rates, etc. For some reason I thought that meant that if you had CCs that were primarily fees instead of actual purchases, that your "lower payments" would be on the purchases. Wrong! What they do not elaborate on TV is that the CC companies and other creditors have to *agree* on reducing/eliminating future fees and most CC companies have stipulations that you have to pay into the program for 3-6 months before they will *consider* lowering/eliminating interest rates and fees. Also, you have to select a "payment date" that satisifes all CCs and creditors so you do not incur future interest and penalties while making payments in order to hopefully reduce/eliminate future penalties and high interest charges. Then there is the fact that DMPs usually "hold" your payments for approximately 10 days before disbursing to the CC companies and creditors, sooooo......using a DMP is not as simple as advertisements make them sound. Then of course, there are the CCs and creditors who refuse to participate in the program or will not accept the proposed payment plan. In our case, Beneficial wanted $20.00 MORE than our original payment!

Color me stupid, but I thought the premise behind a DMP was to lower your payments and interest into a manageable payment plan? C1 wanted to haggle over their payments, 23.00 instead of 18.00 and Sears, well, Sears wanted exactly what the payments had been all along.

What pushed us into filing CH7 was letter from Beneficial's attorney stating we had 30 days to verify our debt before they would begin collections. Stupid me didn't know you could challenge and make THEM prove the debt.

Anyway, I would approach DMPs very cautiously and find out the 'between the line' stuff firstoff and if a CC or creditor agrees to eliminate current fees and penalities, demand it in writing.

[hhou812hh]

I read somewhere once (maybe someone can verify if you are familiar with this), that if you owe say 60k and ccc negotiates your debt down to 40k without filing bk the IRS will look at the 20k you were forgiven as income and send you a "surprise" tax bill on 20k of income. Yet if you discharge 100k in bk you pay NO taxes on it. The tax laws feel that if you file for bankruptcy then you are bankrupt, but if a creditor forgives some debt w/o bk then it counts as income and you must pay up.

Anyone confirm this?

[ducksinarow]

That is true. If you take a deal from the ccc the money they let you off the hook for will be looked at as income and you will get a 1099 for it at the end of the year.

[hhou812hh]

That is true. If you take a deal from the ccc the money they let you off the hook for will be looked at as income and you will get a 1099 for it at the end of the year.

So sadly enough bk is a better choice

[StaciMM]

For some people... There is no one size fits all in life.

Regarding Kam's post, certainly you should check out the company and have a good understanding of all that is involved before making any kind of commitment-and that goes for DMP's and everything else in life. If they're holding payments for 10 days-unless the payment is by check-that is unreasonable.

For anyone who is past due, reaging does occur after 3 months of ontime payments thru the DMP-I believe that is a benefit afforded once every 5 years by the federal reserve. So, if you look at it from that most people behind on their accounts didn't get their overnight, they're not going to get out overnight either. There has to be a pattern of dependable payments. Muc the same in 13-from what I've read in these posts, the payments aren't forwarded to the creditors immediately. It takes a few months for everything to be processed, perhaps because some file and make a payment or 2 just to postpone foreclosure, etc.

So sadly enough bk is a better choice