The General Accounting Office has released its report on the credit counseling requirement of the Bankruptcy Abuse Prevention and Consumer Protection Act. The news isn't as bad as its headline suggests.
In general the GAO has found that the EOUST approval of credit counseling agencies has been effective, producing relatively few legitimate complaints about approved agencies. They found that there are enough approved agencies to meet the demand for counseling and education, and no agencies have yet had their approvals revoked for any reason.
There is a subtle threat there, though; four approved agencies are being audited by the IRS, and if the IRS revokes an agency's non-profit status, the EOUST will yank their approval as well. Thing is, there are bureaucrats at the IRS who seem intent on taking down the entire credit counseling industry; it's just a matter of time before they get to them all. That IRS activity will be something to watch as all of this unfolds.
The GAO study, titled "Value of Credit Counseling Requirement Is Not Clear" recommends that the Trustee Program develop a way to track and analyze the pre-filing credit counseling, and institute formal guidance for credit counseling agencies as to when they should waive their fees. (The study found that agencies are waiving fees for clients who are not able to pay, but there is no consistent standard.) I don't have any special problem with either of those recommendations.
The title refers to the fact that the stated objective of the credit counseling requirement, to "help consumers make informed choices about bankruptcy and its alternatives," isn't really being met. That's attributed to the counseling being initiated too late to help the consumer; by the time they attend their counseling sessions, their debt situation has grown so dire that bankruptcy is the only viable option for them.
Thing is, the lawyers don't want the counselors presenting alternatives to their clients. (Though I'm sure they'll use this study to bash counselors all the same.) I don't know how they can resolve this issue; credit counselors really want to build partnerships with bankruptcy attorneys, and they aren't about to poach clients from them. The GAO study interprets the bankruptcy law as requiring credit counselors to attempt to do just that.
For my part, I think there's value in the counseling sessions even if they aren't attempting to dissuade the debtors from declaring bankruptcy. The debtor gets personal assistance with developing a budget and creating an action plan for managing their debt, and they get counseling about their personal finances and the things that led them to financial difficulty in the first place. And of course I think the debtor education component is worthwhile--the GAO report seems to agree with me on that.