Credit Counselor: Counseling Requirement in Bankruptcy Bill May Discourage Filings.(Brief Article)

Last month, we discussed Freddie Mac's report showing that borrowers who received pre-purchase home counseling on average had a 19% lower delinquency rate.

The federal government has applied similar logic in its pending bankruptcy reform to reduce the number of people that will qualify for filing.

For the mortgage servicing industry, this could mean one less impediment - in many cases - in the process of trying to collect on defaulting loans.

Both the House and Senate have passed their versions of the reform bill and have set up a House- Senate conference committee to iron out the differences between the bills. They are set to meet this month.

A new provision, identical in both bills, says that debtors will now have to receiving mandatory pre- bankruptcy counseling.

The legislation says that a debtor must receive "an approved nonprofit budget and credit counseling agency ... briefing (including a briefing conducted by telephone or on the Internet)," adding that a debtor must provide the court with a certificate from an approved agency and a copy of a debt repayment plan if any was developed through the agency.

Larry E. Craig, chairman of the United States Republican Policy Committee, said in a March legislative notice, "The reform effort is motivated in large part by an explosion in consumer bankruptcies.