“Wouldn’t a person be better off trying a credit counseling service first before consulting a bankruptcy attorney? I think, in my almost twenty-five years of working as a bankruptcy attorney in Indiana, this is the question I hear the most. And, as I pointed out in my earlier blog, More About Looking In All The Wrong Places, I never take offense to the question. First off, there’s no such thing as the best course of action that holds true in all cases and for all people. But, more important, I always remind myself that the person asking the question usually has only a very foggy concept of what credit counseling actually is.

What not-for-profit credit counseling agencies are supposed to offer is education – about good spending habits, about budgets, managing bill-paying, and so on. Then, for a fee, many credit counseling agencies offer to negotiate with creditors (just as debt settlement companies do). Recent probes found many of the agencies were tied closely to the for-profit creditors, and worked mostly for the good of the creditors rather than taking care of the debtors. Many asked consumers to remit the monthly payments to them, rather than to the creditors, and the agencies would take commissions “off the top”. But, even in cases where the credit counseling agency is doing its work in very legitimate fashion, a Chapter 13 bankruptcy might be a much better choice for individuals who have the ability to make regular repayments on their debts.

Here are some of the reasons I favor the Chapter 13 bankruptcy over having credit counseling agencies negotiate settlements with lenders: First, and very important, even with the best credit counseling plan, the interest on the debt doesn’t stop accumulating. A Chapter 13 bankruptcy, on the other hand, allows an individual to pay the debt over a three to five year period with no additional interest accruing! That’s huge. Second, also very important, is that in a Chapter 13, the court deals with all the debts, making sure that no one creditor gets preferential treatment. With a debt consolidation agency plan, no creditor has to negotiate at all – in fact, there are creditors who absolutely will not deal with credit counseling agencies.

Underlying all of my remarks is my firm belief that people who have serious debt problems need to know and to weigh all their options. And, like it or not, that includes legal options. And, while you may see this as a bias in favor of my own profession, the fact is, only an attorney is qualified to discuss legal options. Even more powerful an argument, the bankruptcy court system can provide services that no debt consolidation company or credit counseling agency can ever provide – the court has the authority to prohibit creditors from attaching property, from foreclosing on a home, and can legally force creditors to accept partial payments of certain debts.

In my earlier blog, When Is Chapter 13 The Best Bankruptcy Choice?, I explain that Chapter 13 bankruptcy law was created for people who are earning income and who, despite setbacks they may have suffered, have the means, along with the will, to make payments on their debts under the supervision and protection of the bankruptcy court