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Bankruptcy filers save $25, and a lesson on lucrative nonprofits

Daniel Ray

People going bankrupt just saved $25. The magic counseling certificate that unlocks the doors of the bankruptcy court should still cost $50, not $75, an executive of the United States Trustees has ruled. The administrative ruling also contains a reminder of an important lesson that everyone who deals with nonprofit agencies should remember.

Here’s the background.

As part of the bankruptcy reform law of 2005, people who want to file for bankruptcy first have to get counseling from a counseling agency approved by the U.S. Trustees, an agency of the Department of Justice. The process is supposed to help people avoid bankruptcy, but in practice, by the time people apply for counseling, they’re almost always too far gone financially to avoid bankruptcy. That’s created a situation where desperate debtors just want the darned certificate so they can apply for bankruptcy.

Counseling agencies have griped for a while that it can cost them more than $50 to offer the counseling — particularly if the counseling is done face-to-face rather than online.

While the law tamped down bankruptcy filing initially, it has since surged, and this year, bankruptcy filings are on pace to hit 1 million filings, according to University of Illinois law professor Bob Lawless, blogging over at Credit Slips.  While $25 may not seem like all that much, $25 times 1 million is math that even a journalist can do — it’s serious money.

One nonprofit counseling agency complained formally to the Trustees that it wanted to boost its price to $75, and was turned down in April 2008. It appealed, and in a final decision handed down June 30, but just posted online a few days ago, Clifford J. White III, director of the Executive Office for the Trustees, ruled against the company.

The counseling company, whose name is redacted in the copy of the ruling posted online, was turned down for several reasons — chiefly, that its supporting numbers mixed apples and oranges, and its books showed cash reserves weren’t being drained.

The final reason, though, offers a lesson. The nonprofit counseling agency was in part turned down for the increase because its executives’ salaries were “far in excess of the relevant standards published in The Non-Profit Times” a national publication focusing on nonprofits. It publishes a yearly salary survey.

I find that people are too trusting of companies that are nonprofits. A company may be structured as a nonprofit and still lavish its executives with high salaries and limousines, and have for-profit ancillary companies.

A decade ago, credit counseling services had a kind of social service flavor to them, but since then, a lot of sharks have entered this water. If you or someone you know needs such services, it’s more important than ever to check them out.

See related: 8 steps to wisely picking a credit counselor, Credit card offers continue even after bankruptcy, Bankruptcy law change makes it tougher to discharge debt


Thanks, No Debt Plan, for including my post, 3 in 10 workers have more card debt than retirement savings, in the 158th edition of the Debt Reduction Carnival. Lots of good posts there; check them out.

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