Myvesta News Release

ROCKVILLE, Md. - A new law goes into effect on October 17 that is designed to make it more difficult for consumers to seek protection from creditors through bankruptcy. The changes to the bankruptcy code, which were lobbied for heavily by creditors, were signed into law by President Bush in April. But while supporters of the law have long argued it is a necessary change to curb perceived abuses of the United States bankruptcy system, consumer advocates feel the changes have been put it place to benefit creditors.

"The vast majority of bankruptcy filers are Americans who have fallen on hard times and are looking to get their lives back on track. This law does absolutely nothing to require creditors to be flexible, more understanding or compassionate when consumers get into financial trouble," said Steve Rhode, president of Myvesta, a nonprofit consumer education organization. "This new law is vinegar poured on the open wounds of bankruptcy filers. It lays more administration and bureaucracy on debtors and gives the creditors greater power to use the court to reach into the lives and pockets of consumers."

One of the key new features of the law is a requirement that people filing bankruptcy have to go through a pre-bankruptcy counseling session with a credit counseling agency. The consumer will be required to pay a fee of $50 or more for the session, or, if the debtor cannot afford the fee, the agency must provide the counseling free of charge.

"To meet the requirements of this pre-bankruptcy credit counseling session the debtor must basically have a pulse and be able to fog a mirror," Rhode said. "The only reason the debtor has to go through this process is to get a completion certificate to continue on with the filing of their bankruptcy. It's just one more hoop this law is requiring consumers to jump through, at their expense at a troubled time in their lives. By the time a consumer knows about the credit counseling requirement they have already visited a bankruptcy attorney. Bankruptcy attorneys have already been talking about suing credit counseling agencies if they talk the consumer out of filing for bankruptcy. Some attorneys feel that any advice about bankruptcy by any credit counseling agency may be an unauthorized practice of law, and punishable."

According to Rhode, this mandated education could further jeopardize the existence of credit counseling agencies due to close scrutiny from the Internal Revenue Service.

"Since the majority of income for credit counseling agencies comes from compensation from creditors for collecting money from consumers, the IRS feels that credit counseling organizations may have become nothing more than collection agencies operating primarily for the benefit of the creditors," Rhode said. "One of the items the IRS looked at in making this determination was the amount of, or type, of automated or scripted assistance these agencies delivered to consumers. But since millions of Americans will be now forced to go through pre-bankruptcy counseling, the agencies will almost certainly have to deliver the required counseling in an automated or group fashion. Ironically, while one arm of the government requires this counseling to be offered, the other will most likely punish agencies for the vast number of people that will have to be shoved through this ridiculous drive-by credit counseling component of the new bankruptcy law."

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Myvesta^SM is dedicated to helping people create healthy financial lives. The organization provides a wide range of materials to inspire and inform people so that they can break down their barriers to financial and personal success. For more information visit Myvesta.org online.