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Information for Consumers

Credit counseling is not the same as debt management. Debt relief companies cannot collect advance fees, according to a new Federal Trade Commission rule effective October 27, 2010. | More information

Credit Counseling

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, requires individual debtors planning to file for bankruptcy protection to receive credit counseling from a government approved organization within six months before they file. They must also complete a debtor education course to have their debts discharged.

These credit counseling organizations advise consumers on managing their money and debts, help develop a budget and repayment plan, and usually offer free educational materials and workshops. Counselors discuss the entire financial situation with consumers and help them develop a personalized plan to solve their money problems or will refer a consumer for a debt management plan (DMP) to an agency such as a debt settlement company.

A credit counseling organization usually only reviews and advises consumers on their options and have a standard fee for their services; however, these organizations are required to provide the counseling free of charge for those consumers who cannot afford to pay. The Department of Justice’s U.S. Trustee Program approves organizations to provide the mandatory credit counseling and debtor education.

Debt Management

By the standard financial definition debt management involves a designated third party assisting a debtor with the debtor paying a monthly fee which will be used to pay the debts. In other words, a debt management service acts as a middleman between you and your creditors, obtaining a single monthly payment from you and then paying off various debts on your behalf. The service should help you regain financial control, not put you further into debt.

In 2005 Kentucky's legislators passed House Bill 294 establishing registration requirements for persons engaged in debt adjusting (KRS 380). Several changes were made to those laws in House Bill 166 which became effective July 15, 2010. Debt adjusters subject to the law must promptly file the initial registration form, pay a fee, and obtain/maintain insurance coverage for errors and omissions, employee dishonesty, depositor's forgery, computer fraud, and violations of the debt adjuster laws, as well as post a surety bond or an irrevocable letter of credit. The amount of the required insurance coverage and surety bond is increased if adjusting a debt that is secured by a mortgage on residential real property. The new regulation and forms became effective November 5, 2010.

When privately seeking the assistance of a third party debt management service, check our table of Debt Adjusters Registered in Kentucky to ensure the organization is properly registered.

Debt Settlement

Debt settlement is a viable option to help you eliminate your debt. However, if you choose the wrong company, you may find yourself in worse shape than you were before. Debt settlement companies make some pretty amazing claims. It is critically important that you choose the right company. Like any other industry, there are good companies and there are bad companies.

Debt settlement groups help consumers negotiate reductions in the amount owed. These reductions may include: reduced interest rates, lower monthly payments, reduced number of collection calls, reduced late fees and over-limit fees; however, their fee structures vary from large up-front fees to spread out payments on a monthly basis. Debt settlement may be a viable option to help you eliminate your debt, however, if you choose the wrong company, you may find yourself in worse shape than you were before.

Debt settlement companies make some pretty amazing claims:

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It is critically important that you choose the right company. Like any other industry, there are good companies and there are bad companies.

Maximum fees

Statute	Maximum fee
380.040(2)(a) - Initial set up fee	$75.00
380.040(2)(b) - Annual consultant fee	$50.00
380.040(2)(c) - Periodic fee (on money paid to the debt adjuster each month for distribution to the debtor’s creditors)	greater of 8.5% or $30.00
380.040(3) - Bad check charge	greater of $20.00 or amount passed on by the bank
380.040(4) - Other fees for services in relation to debt that is secured by a mortgage on residential real estate	No fee can be accepted in advance of the complete performance of all promised services.