Bankruptcy Alternatives / Debtor's Options

Non-Profit Credit Counseling Services FAQ

  1. Non-profit credit or debt counseling agencies charge no fees, and I don't have extra money, shouldn't I always start by trying the non-profit credit or debt-counseling route?
  1. Some of these non-profit credit or debt counseling agencies can be great. In certain cases a prescription of non-profit credit or debt counseling can be just what the doctor ordered, but be very careful.
  1. Do these agencies have a dark side?
  1. Absolutely! I have seen many people with their home in foreclosure because they put their faith in the wrong non-profit credit or debt-counseling agency.
  1. How can I find the right agency?
  1. The best practice in dealing with these agencies is to understand who they are, what they do, and only seek them out if your situation truly fits their program.
  1. I thought these agencies operated though the state or federal government as a free service to help debtors, is that wrong?
  1. Very wrong! The way these agencies earn non-profit status is by filing the property tax papers, not because they are federally sanctioned or endorsed. This non-profit status does not prevent them from making a lot of money and paying the owners and directors huge salaries so when the end of the year tax audit comes there is "no profit".
  1. Doesn't the government fund the non-profit agencies and insist on a neutral bias and that they help the debtors?
  1. Just the opposite. Almont all of the funding for these "non-profit" agencies comes from the CREDITORS, meaning if you want to be funded next year they better have a creditor bias.
  1. If they have an allegiance to the creditors what will they do for me as the debtor?
  1. Basically these agencies will arrange a payment schedule with your creditors.
  1. How does that benefit me as the debtor?

    1. The creditors will stop hounding you.

    2. You will most likely make just one payment to the agency, they will break up the funds, making things easier

    3. Sometimes they will negotiate interest lowered or eliminated.

    4. Minimum payments can be lowered to make things affordable and stretch your repayment time frame.

    5. Bankruptcy can be avoided.

    6. They will negotiate with the creditors for you, avoiding the sometimes nasty or confrontational collectors.

    7. If you complete all program payments your debt will be gone.
  1. That sounds like just what I need. Why shouldn't I do that?
  1. I'm not saying you shouldn't, I'm saying you should understand all of the options and the downside of debt or credit counseling services.
  1. What are the negative aspects of debt or credit counseling services?
  1. Here are the three big ones:

1. Too often these payment plans demand so much of the debtor failure remains only a matter of time. Even worse than that a debtor may enter into a credit or debt counseling to work with credit card and personal debt, and in an effort to keep up with a futile plan put their home mortgage in default. Some of these agencies have an attitude that if your plan crashes after three months that was three months of payments the creditors wouldn't have had.

2. Other options will settle the debt for zero dollars or at a discount. Non-profit credit or debt counseling agencies always work out the debt at 100 cents on the dollar, that's why I have listed this option as a sub-category of payment in full.

3. Some mortgage lenders will view enrollment in a debt-counseling program as an event equal to a bankruptcy in terms of a negative impact on a credit decision.
  1. I thought credit counseling would help my credit?
  1. It may, and in the long run it certainly will. In the short run, however, some lenders may treat you like an outcast. Some lenders will view credit counseling as a good thing. Not as good as unflawed credit, but not as a terrible flaw. Credit counseling should not stop you from getting credit; it will just eliminate some choices.
  1. Do non-profit credit counseling agencies offer any special advantages?
  1. Yes.
    1. They try more than others to examine the root of the debt problems and help with budgeting and future fiscal planning.
    2. Other than paying what a creditor asks for credit counseling can be the least damaging debt settlement option to your computerized credit score.
    3. For debtors with high incomes or who still have very good credit non-profit credit counseling services may be the only option available.
  1. How can I learn more about if non-profit credit counseling is right for me?
  1. I have prepared a non-profit credit counseling pre-qualification form which may help, more pre-qualification forms can be found at fix-debt.com.

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Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7 bankruptcy, Chapter 13 bankruptcy, or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

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The most recent update of this page occured on 05/06/04.