Kentucky Credit Counseling Agency

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After October 2005 you will be required to have a "credit counseling" class before filing any bankruptcy.  But this is a class not an agency like  Americredit.  Credit Counseling is the answer for some people. But did you ever wonder what was the drawbacks to that kind of credit counseling?  Well here are some:

1. When you pay Credit Cards through credit counseling the banks may turn in a 1099. You are taxed as income for the amount of the debt you are forgiven.  But, if your debt is extinguished in a bankruptcy there is no tax.

2. Over 90% of all Chapter 13 and credit counseling agency plans fail. People rarely complete the credit counseling plans. But in a Chapter 13 if you make most of your payments and can't finish you may get a hardship discharge.  If you don't make all of the Credit Counseling payments you owe it all. Many people find themselves unable to finish credit counseling plan payments their credit trashed and their time wasted. With credit counseling agency plans you must complete all of the payments ... on time or their plans fail.

3. Although Credit counseling agencies promise that they can force credit card companies to settle accounts for pennies on the dollar.  The truth is that no credit counseling agency can force banks to accept 50 cents on the dollar.  In some states credit card companies can accept credit counseling payments and still sue for the complete amount later.  These states have no accord and satisfaction rules.  Only the bankruptcy court can force banks to take pennies on the dollar and many bankruptcy plans offer 10% or less on the dollar. Credit counseling agencies and their plans can't do that.

4. Some Credit Counseling agencies have fraudulently taken payments from customers and then filed bankruptcy themselves. (see the 2004 story on Ameridebt and the FTC investigation of the industry on the FTC website.) Credit Counseling agencies pay themselves from the dollars you pay them to pay your bills with.  Often credit counseling agencies take up to 50% of what you pay them as a "fee".   This has left hundreds of people in Kentucky still in debt and their money taken.

5. Credit Counselors often advise people that by paying 50% of what you owe that you can "repair your credit record".  If you partially repay your credit will normally be just as bad as if you had filed bankruptcy.  Both credit counseling plans and bankruptcy leave an I-9 unpaid record that banks had to charge off the debt.

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