In 2005 there were many changes made to bankruptcy laws. Banks lobbied hard to make it more difficult for consumers to shed unaffordable unsecured debts (like credit cards) through a chapter 7 discharge.
The income based means test was introduced as part of the 2005 changes. It is a household income hurdle that must be cleared first. The allowable earnings are different from state to state. You basically must earn less as a household than a set dollar figure. If you are over the median income amount, there may be allowable exemptions that apply to you that will help you clear the means test. A good bankruptcy attorney will be able to help you better evaluate any exemptions.
This income hurdle was supposed to push more people into a chapter 13 repayment plan, or possibly into a debt management plan (DMP) offered through nonprofit credit counseling agencies. That hasn’t worked out too well. There has been no substantial change to how many chapter 7 bankruptcies are filed versus chapter 13’s.
Another one of the changes in 2005 was the requirement for EOST approved pre and post filing counseling sessions. A certificate of completion is required, or your petition can be dismissed. I am sure the idea was that more people would be guided away from bankruptcy by credit counseling agencies (CCA’s)who partner with banks in order to get you to pay back your balances at a lower interest rate.
CCA’s can charge as much as 50.00 for the session. Most of the CCA’s quickly learned that live sessions were a waste of counselor resources and went to a more streamlined automated delivery system. Many sessions are now done online. One of the EOST approved vendors who can certify that you have met the pre filing counseling requirement now charges as little as $5.
So… credit counselors who are trained to operate a computer screen in order to fit people into predetermined criteria for a debt management plan has now been reduced to a 60 minute experience flipping through screen shots on a computer. While the former was never really equipped to provide any creative concepts or information to avoid bankruptcy, the latter is even less instructive.
A friend of mine recently filed chapter 7 bankruptcy. He used an online delivery system for the pre filing counseling requirement. One of the suggestions the system gave him to avoid bankruptcy was to quit smoking. He doesn’t smoke. Never has. He did not accidently answer a question about smoking. There were no questions about smoking.
The counseling session requirement was a bad idea to begin with due to how narrow the qualifications for credit counseling repayment programs are and the fact that banks don’t permit the CCA’s to offer anything other than a DMP. A poor concept has only become sillier with computer generated certificates that have no chance of delivering a meaningful evaluation of a person’s ability to avoid bankruptcy.
The vast majority of people who can qualify to discharge debts in a chapter 7 are going to find that bankruptcy is the least costly and quickest path to a financial fresh start. For those seeking an alternative to bankruptcy, a DMP offered through credit counseling companies may be an option if you can afford to make a monthly payment equal to about 2.2% of your combined balances on accounts you enroll into the plan. At the time of this writing less than 20% of the people who speak with a credit counseling outfit can qualify for a DMP.
You can also look to negotiate reduced balance settlements with creditors; enroll in hardship repayment plans direct with your creditors; or a combination of both.
The Disclosures Made by Those Offering Alternatives to Bankruptcy – How Important Are They?
Very, but those doing the disclosing are not really helping with the little information they give.
When a person is struggling with debt and looking for outside help from a company or person, they should certainly have risks and rewards disclosed to them. Ideally, the disclosures would help a person to best evaluate which direction to take for help, and who to trust. A recent article by Elisabeth Rosenthal in the NYT: I Disclose… Nothing helps to underscore what I find to be the biggest shortcoming of disclosures in debt relief – No context.
From NYT article linked above:
“… disclosure laws — meant to elucidate — do not necessarily lead to greater transparency or prevent the things they were meant to deter.”
One or two sentence disclosures rarely do. Disclosures about the affects of a debt relief option to ones credit score are a good example.
Credit counselors and debt settlement companies offering legitimate services will disclose that there will be an impact to credit scores and those things will appear on the consumer’s credit report as a result of enrolling in their respective programs. If a consumer is hyper concerned about her credit score and credit report, but unable to pay the minimum monthly amount due on her Citi card, she may be more prone to try and avoid bankruptcy with a DMP than by opting for debt settlement. In this way, one would think disclosures about the impact to credit that this consumer read or heard – performed exactly as meant to. Nope.
The problem debt she has is a $17,000.00 balance with an interest rate of over 20%. A credit counselor offering a monthly payment of 357.00 sounds better than the 500.00 plus she cannot afford now, but the 357.00 monthly payments are going to be a stretch too. She enrolls in the DMP and scrambles up the 357.00 each month only to miss a payment in month 8. She finds herself unable to get back on track the following month. The account was closed by the creditor when she enrolled in the debt management plan, she now has a 30 and 60 day late pay reporting, and she blew through 2500.00 in payments toward a solution she was not going to succeed with. That 2500.00 would have more than covered the cost of a chapter 7 bankruptcy that she was qualified to file. And, as it turns out, that 2500.00 was enough to settle the account with card services in month 7 after she fell off the DMP.
The messaging from credit counselors, the media and societal conditioning placed too high of importance on the wrong thing. Not just in this woman’s case, but likely in millions of cases. Her issue was debt she could no longer afford to pay. Not her credit score. Her score will bounce back from the settlement event in about the same amount of time it would have had she filed for chapter 7.
Disclosures made when she was originally trying to get a grip on her options lacked the detail needed for her to make a fully informed decision. The disclosures about credit impacts are often used as a bias forming selling point to the detriment of the individual relying on professional feedback. The lack of fully fleshed out disclosure details is not a mistake by omission. It is a purposeful strategy. One that is not just costly to the consumer in financial trouble, but to local communities and our national economy.
More from the NYT piece linked above:
“One fundamental problem is that disclosure requirements merely get information onto the table, but themselves demand no further action. According to political theory, disclosure is both a citizen’s right and a tool to ensure good government and consumer protection, because it provides information that leads to informed decisions. Instead, disclosure has often become an endpoint in the chain of responsibility, an act of compliance with the letter of the law rather than the spirit of transparency.”
A good example of this would be companies offering debt settlement disclosing the fact that nonpayment to creditors could result in being sued by a creditor in their attempt to collect. That lawsuit may result in judgment which could result in bank levy or garnishment. A consumer given this disclosure is now informed of a known risk. The company making this disclosure can feel that they covered their own butt because the risk was plainly stated to the customer in advance. However, if any real context were provided to the consumer about this known risk, it would involve much more detail – detail that cannot fit into a tidy paragraph or three, let alone one sentence. Being sued by a creditor IS a real risk. Do settlement companies and those who promote them state plainly that the risk of being sued increases the longer debts remain unpaid? Most don’t go into that type of detail as it would scare off a consumer from beginning the savings and settlement plan.
The kind of detail a consumer deserves to know on this critical disclosure is not provided because it would often lead to the consumer opting for bankruptcy where they are protected from collection law suits, or electing to gut out the repayment plan in a DMP over 4 to 5 years. Here again, the failure to provide consumers the type of debt advise and disclosure needed, that allows them to make informed and appropriate decisions, are a purposeful act of omission tied to a company or persons revenue goals.
More from the NYT article:
“Many disclosure programs today cloud rather than clarify a particular situation. As disclosure statements have become more numerous and more complicated, “consumers just ignore them or don’t understand what they say,” said Jeff Sovern, an expert in consumer law at St. John’s University.”
The type of disclosure context needed that provides an individual seeking debt relief a meaningful grasp of the issues they face; that educates and informs to the degree that would maximize awareness of the wrong and right steps to take; how to evaluate the immediate need for relief alongside concerns for ones future success and goals; that applies disclosures to the unique circumstances of the relief seeker – is simply not provided in the main by those offering alternatives to bankruptcy.
“While regulators and consumers see disclosure as a way to improve transparency, companies often regard it as a risk-management strategy. “Often the goal of disclosure is to reduce or eliminate the legal risk,” Dr. Weinfurt said. “It is so they can say, ‘Hey we told you so.’ ”
When it comes to the debt relief industry, companies and people provide disclosures in order to meet a minimum standard and to limit their own liability. Any substantive and informative discussion around disclosures to debt relief seeking customers that allows them to truly weigh and measure how the facts disclosed apply to them at the moment and on a forward looking basis, typically never happens. If meaningful discussion about key disclosures does occur, it would most likely be down the line when a disclosure item is triggered and after irreversible action steps in debt relief have been taken. This is where most of the headaches for debt relief customers and companies occur. Unhappy customers who were not fully aware of the implications of the decisions they were making at the time they enrolled in a debt relief plan. Customers of debt management & debt settlement plans may want to place blame on a service provider when things don’t go as planned. The service provider will want to point to a disclosure and say, “we told you this at the beginning”.
The consumer seeking debt relief is not shopping for a toaster oven. Companies and individuals representing they can help someone in need are selling something. That something is not as benign as describing the convection cooking features of a counter top oven. The responsibility debt relief service providers have to inform and educate the consumers they come in contact with cannot be underscored enough.
A friend of mine started a unique consulting service a couple years ago. He provides paid consultations with consumers in order to help them understand the debt relief options available to them. He does not provide settlement, debt management or bankruptcy services. What does he do? He provides detailed debt relief disclosures as they relate to the individuals set of circumstances that are not readily provided to consumers in any meaningful way by the companies who DO provide the services. He fills a niche that should not even exist, but it does, and will remain until disclosure gaps are filled with useful information, consumer education, and side by side comparisons.
There are tools and solutions available to legitimate service providers that can fill the disclosure gap. CRN offers educational tools and training to the debt relief services industry along side the products and services we provide direct to consumers in need of debt relief. We provide more detail about all of the debt relief implications than anyone else because we are not financially tied to the path you choose for relief. We are committed to providing the details that help you make good decisions right now and in the future. We provide this at a lower cost than currently can be found anywhere else.
Want to get fully informed? Would you like to work with a company that provides a satisfaction guarantee? Consider enrolling in CRN’s membership program.
Debt Relief Information and Inovation – Helping Companies Help Their Customers
One of, if not the largest shortcoming that exists in the current system designed to provide people struggling with debt an alternative to bankruptcy is – Information. That we have come through the “information age” and fallen short of including more of it in professional debt relief products and servicing is a failing that can and should be fixed.
A system that better educates and thoroughly informs consumers about their debt relief options; intervention steps available to them that can be accomplished on their own; through service providers charging only fair and affordable fees; all with a consumer first focus – Is Here.
In an effort to be a catalyst for continued industry change; deliver enhanced value to consumers; and to bring complete information and tools direct to consumers; CRN now offers industry professionals training and access to efficient and effective technology systems for our successful methods in educating and supporting consumers through the debt relief decision process and delivery of debt reduction solutions.
So – what’s on the table? Let’s dig in.
Program Design:
The initial focus of this education platform is to assist customers with reaching informed decisions about their options for managing debt they can no longer afford to pay weighed against current and projected income, individual hardship circumstances, and future financial goals.
The education, support and communication systems next place consumers in the best position to take actions steps to manage some or all of the debt relief activities on their own, while offering continued access to professionals and peers. Consumers can also connect with service providers directly when needed or requested.
Your customers will be subscribed to information and individualized support allowing them to:
Reduce monthly payments via DIY DMP efforts or as provided by a CCA
Negotiate debts for less than balance owed through DIY settlement or full negotiation services provided by attorneys who charge based on contingency and at a rate of 15% of savings
Why bankruptcy may be the option of first resort, not last – as it is often referred to.
Direct access to discounted bankruptcy assistance
Cost/Time/Resource benefit analysis
Capitalize on existing market reach:
You can simply refer people into the system with confidence knowing that the education and information is supported by knowledgeable professionals with years of experience in delivering unique and tailored strategies to your customers who can depend on fair and honest experienced support beginning with assessment and continuing through implementation and ultimately – successful resolutions.
You will be able to monitor and track activity with access to reports set at intervals and frequency you choose.
Expand existing products and services:
Established industry participants have the opportunity to earn while you learn. We provide executive level, supervisor/manager, intake/consultant/counselor training that will allow you to manage your own platform delivery, product and servicing support. In this way, you can provide meaningful value and experienced support to your customers while your internal resources are acquiring skill sets and compenetncy levels consistent with your management, and control protocols.
Give yourself and your customers a competitive edge:
One significant market impacting attribute of this product and delivery system is the inclusion of proven upfront DIY settlement education that is supplemented with ongoing information and detail accessible to subscribers. This feature encourages consumers to:
Confidently speak directly with their creditors in order to effectuate settlements without the need and expense of third party negotiation services.
If direct debt settlement services are requested or needed they are available and offered by attorneys and established industry professionals at a rate of 15% of savings.
Access to proven DIY settlement strategies and support often lead to accelerated customer success because money is going to creditors instead of fees for services. With direct services available on an as needed basis, at half or less the cost of the industry norm, more customers will reach their debt relief goals.
Help people help themselves and connect them to affordable services:
Connect customers with your designated product and service partners. Whether you work with partners who deliver HUD or bankruptcy counseling, or provide same internally; where you connect those seeking bankruptcy or other competent legal resources; connect customers to debt and credit products and services of virtually any type – you have the ability to manage internal and external relations. If you need recommendations we can provide them.
The ability to maintain your internal and external work flow assists our partners with managing their reputation while maintaining current professional relationships or creating new ones, further economizing CPA and/or maintaining existing revenue channels.
Some of the partnerships you may already have, or may choose to connect with include:
Bankruptcy attorneys
Attorneys providing direct debt settlement services charging a performance fee of as little as 15% of savings
Credit Counseling
HUD approved housing counseling
Judicial foreclosure defense (in court)
Attorney managed loss mitigation
FDCPA protections
Systems delivery and efficiencies using proven technology:
With over 500,000 custom lines of code, there are many features to outline. What follows are but a few.
• Custom Enrollment Package, program types, program length, and EP submission pages for the Sales team.
• The Create EP module uses actual settlement data history to calculate estimated settlement for creditors/collectors
• Electronically store documents
• Custom enrollment checklist with multiple categories and items
• Ability to group creditors for easy deployment of policy changes
• Access to hundreds of built-in letters and reports
• Ability to modify our built-in reports and request custom reports
• Easily print and export data to Excel
• Users can define their default searches and activity views
• Easy navigation through the use of tabs and context menus
• Ability to track changes made to customer data
Client Login:
• Educational links and courses
• Financial Analysis tools, including custom form for the client to submit or change their monthly budget
• Useful debt, credit, and financial related links, calculators and tools
• Custom Company Contact info page
• Real time access to their account status, including all enrolled accounts and current statuses
Tasks and Events:
• Add notes and create follow-up reminders
• Attach documents to the client’s file
• Set up appointments based on availability and easily check the availability of every specialist or counselor
• Easily set up your appointment slots several weeks in advance with recurring appointments if necessary
• Ability to schedule for follow-up for a specific date and time
• Link documents or other attachments to each issue note
• Customize your own To-Do lists and set up custom workflows for automatic redirection of work
Fees, ACH, Payments:
• Set up multiple due dates and disbursement dates
• Automatically calculate one-time fees and monthly fees
• View balance forecast of each account using custom dates
• Create and submit ACH debit files to your financial institution
Customizing to fit your needs and the needs of your customers is available
This partnership platform will be ideal for existing service providers to immediately help customers who do not qualify for programs you currently support while providing substantive upfront value. Given time and levels of market adaptation, this platform will usher forth broad and helpful impacts to:
Debt relief industry servicers
Marketing
Financial services
Media
Regulatory oversight
The content and delivery platform is where the industry needs to be when informing and assisting consumers. This is where we as an industry should be given current and ongoing regulatory and oversight realities. The system provides lower cost efficiencies for current market needs while maintaining flexibility to adapt to future opportunities and realities.
Whether you simply wish to connect people to affordable and reliable resources when looking for answers and effective tools to deal with overwhelming debt, or would like to expand your available product and services, I invite you to ask questions and comment below. If you would like to schedule a time to learn more details you are welcome to contact me directly.
Working together we can build a more effective and productive debt relief industry future.
A couple of friends of mine who are experts in the debt relief industry came together recently to put a together a powerful tool for consumers and industry experts. The calculator and additional tools you will find discussed and linked below will help you determine what debt elimination option may be right for you. I like this tool. It focuses on the math of each option first. In debt relief, if you cannot make the numbers work, you cannot make the solution work.
You may still need to discuss your particular situation with a professional service provider to discuss program benefits and drawbacks, but by starting with the calculator and determining what your financial abilities are first, you will be able to narrow your options and save yourself quite a bit of time.
Every single day I help people for free to find good solutions for problem debt. Not long ago I was talking with some friends and it occurred to me there was no one single tool people could use to better understand all of their options to tackle their debt. Why not?
So in collaboration with the smart technology people at USDR we created just such an online calculator to give people a somewhat personalized side-by-side comparison of the options, costs and payments of the different approaches to eliminate their debt.
We’ve just launched the How to Get Out of Debt Calculator and I think it gives people an impartial and detached view of what they can do to tackle their debt.
The use of the calculator is free and does not require people to share any personal identifying information.
Each option for getting out of debt certainly has plusses and minuses. But through education and awareness each person can make a better choice about the approach that’s right for them.
The calculator is not designed to be the creator of a final plan to implement, in fact we don’t sell any debt relief services at GetOutOfDebt.org.
At GetOutOfDebt.org what we do is provide information, education, free help and resources for people dealing with debt. This new free online educational tool helps us to further that mission.
The unique online calculator is designed to give people a wider eyed view of the logical solutions available so they can have an educated discussion with any for-profit or non-profit debt relief provider they ultimately choose to work with.
And now, without further fanfare, I invite you to try and enjoy The Amazing How to Get Out of Debt Calculator. I think you’ll find it to be pretty amazing in the distilled education it presents users.
Feel free to link to the How to Get Out of Debt Calculator in an effort to help people better understand their options. Your link to the calculator simply helps us to help people.
And in the interest of educating consumers further I’ve also just recently released another online tool that provides comprehensive information to show consumers the regulation, licensing, and registration required of debt relief companies on a state-by-state basis. It’s yet another free resource available through GetOutOfDebt.org to protect consumers looking for debt help. You can find links to this in the resource section at GetOutOfDebt.org.
“When I first signed up for the program I received the cds and printed material and studied them and they were a great help and reassurance, but as you get into the process you end up with so many questions and concerns that nothing takes the place of that live voice on the phone or an email. The help of the specialist I worked with was critical to my success...with the help of my specialist I have settled 4 accounts of nearly $40,000. I don't know what I would have done without the specialist's help.”
“I would like to say that CRN provided a light at the end of the debt tunnel for me. I've only closed 1 account out of 4, but I can see and manage how I will close my debt. My debt specialist has been a huge help getting me set up on the right path. His consultation has been great in coaching me and giving me advice on how to handle my creditors and my finances. I would recommend CRN to my friends and family.”
