Area credit counselors report rise in clients

1/27/2006

People are starting to seek out credit counselors locally and statewide as bankruptcy filings begin to pick up steam after plummeting because of a reform law.

The counseling is a new requirement prior to submitting a bankruptcy petition, and typically costs $50 for a 30 to 90-minute session in person, by phone, or through the Internet.

Credit Counseling Service of Lima averages eight such counseling sessions a week. Supervisor Vicki Hughes said, "They do learn a lot."

Toledo lawyer John Jacobson disagreed: "I don't see how it can help."

He questioned how much can be accomplished in such a short time, but he conceded that would-be filers who must collect pay stubs and expense receipts for the counseling might realize how much money they spend each month and on what.

Backers of the bankruptcy reform legislation, which took effect Oct. 17, said the pre-filing counseling should help steer many debtors into alternatives to bankruptcy.

But it hasn't worked out that way.

The nation's largest consumer credit-counseling group, Money Management International, of Houston, recently reported that nearly 15,000 debtors have been counseled in the last three months, and only 5 percent found alternatives to bankruptcy.

Locally and nationally, bankruptcies set records last year. In the 21-country northwest Ohio region served by the U.S. Bankruptcy Court in Toledo, 16,883 cases were filed, an increase of 59 percent from the previous year.

Nationwide, more than 2 million cases were filed, up 32 percent.

A big chunk of those filings came in the few weeks before Oct. 17.

The new law made it tougher to qualify for Chapter 7 removal of all debts, and made it more expensive to file and hire an attorney.

With many people filing ahead of the law, the number of new cases has dropped.

Preliminary figures show only about 25 cases a week this month, compared with about 135 a year ago.

Jim Welch, a counselor and supervisor for the Consumer Credit Counseling Service of Northwestern Ohio, said his Toledo agency expects counseling sessions to pick up.

e charges $50 for a face-to-face session lasting 90 minutes.

Consumer Credit Counseling of Portage County, in Kent, Ohio, reported that its volume is sporadic, two to seven cases a day, mostly from northeast Ohio.

Stephen Priestap, another Toledo lawyer, is skeptical of the benefit of the hasty credit counseling, calling it another hurdle for would-be filers.

"A couple of people did tell me it was useful," he said. "They [discovered] where their problems were financially."

Mr. Welch, the counselor, said the more meaningful benefit from the reform law likely will be from another counseling component, which requires the debtor take a money-management class before having his or her bankruptcy discharged.

No such counseling sessions have been booked by him, he said.

The Fremont office of Catholic Charities for the Diocese of Toledo has been approved as a counseling agency but has not begun its sessions.

One of the larger national counseling agencies is GreenPath Inc., of Farmington Hills, Mich., which averages 1,800 sessions weekly, mostly by telephone, compared with about 700 in late October, said Courtney Scruggs, a spokesman.

The agency has 42 counselors and is approved for debtors in 45 states, she said.

She said counseling lets people know there are other options besides bankruptcy, but so far fewer than 1 percent have chosen them.

"Most people feel they need to file bankruptcy because there are circumstances beyond their control, like medical expenses, divorce, or death," she explained, and many believe they need to act to save their homes.

The federal government has approved 15 agencies to counsel debtors from northwest Ohio and 12 for debtors in eastern Michigan.

For a list of approved counseling firms, see the Web site http://www.usdoj.gov/ust/bapcpa/ccde/index.htm. Click on Approved Credit Counseling Agencies, and then click on Ohio and view the list marked OHN or on Michigan and view the list marked MIE.

Contact Homer Brickey at:

homerbrickey@theblade.com

or 419-724-6129.