Chicago Bankruptcy Lawyer Blog

With millions of consumers in significant debt, credit counseling scams are a lucrative source of cash for unscrupulous agencies. People often ask us about the difference between a bankruptcy and credit counseling services. Depending on the type of bankruptcy that you qualify for, you may completely erase your debts or follow a court-approved payment plan to repay your debt. Credit counseling services vary, but many offer a debt repayment plan whereby they contact your creditors and attempt to arrange monthly payments. With a credit counseling service, you typically pay the counseling agency a monthly lump sum, which they disburse to your creditors. If you're considering a credit counseling service, look out for these warning signs of potential credit counseling scams:

•    Beware guaranteed results.
Federal law prohibits credit counseling agencies from guaranteeing results. A good credit counseling agency can tell you likely results and outcomes, but results are entirely dependant on the credit bureaus and your creditors, so credit counseling agencies cannot 'guarantee' a specific outcome. Not only is it impossible to guarantee a specific result, but it's against the law. Only a bankruptcy attorney can force creditors to accept a payment plan that you can afford or erase your debt entirely.
•    Don't pay money up front.
Again, this aspect of credit counseling services is regulated by law. Unless the credit counseling firm is run by an attorney or CPA or is a registered non-profit organization, they cannot request money up-front for services. Be very clear about the structure of a credit counseling agency to ensure you're not being asked to pay fees up-front, unless it's a legitimate non-profit or attorney or CPA-run firm.
•    Research the credit counseling service.
How long have they been in business? Is it a member of the Better Business Bureau? Willingness to provide information about the company is a good sign in the right direction, and reluctance to freely offer this information is a warning signal. If the company is registered with the BBB, go to their website and check them out for consumer complaints. Look for credit counseling services that have been around for at least a few years, as this indicates that they're probably not a 'fly-by-night' organization that will take your money and run off with it.
•    Discuss your financial situation.
Make sure you discuss your specific financial situation with the credit counseling service. If a credit counselor tries to get you to sign up for a specific debt repayment plan without asking about the specific details of your financial status, you're probably not getting services tailored to your needs by a trained professional.
•    Creating a 'new identity' is fraud.
If a credit counseling service tries to have you establish a new social security number or use an employer identification number (EIN) for new credit applications, don't do it. Both of these methods to 'establish a new identity' are considered fraud, and you could go to jail for using these methods to clear up your credit.