Yesterday, Professor Sovern blogged about a roundtable on credit counseling and bankruptcy. A new National Consumer Law Center study on the same subject finds that new counseling and financial education requirements imposed on debtors by 2005 changes in the nation’s bankruptcy laws have so far failed to deliver measurable benefits to affected debtors. New Burdens but Few Benefits: An Examination of the Bankruptcy Counseling and Education Requirements in Massachusetts questions the value of making consumers spend time and money on counseling before filing for bankruptcy. Creditors and agencies have failed to offer flexible and innovative programs that present real choices to those receiving counseling, the report says. “Consumers can be counseled and educated, but at the end of the day, if there are no good alternatives to bankruptcy,there isn’t much value to the effort,” says Deanne Loonin, NCLC staff attorney and coauthor of the study.
The report, which is based upon a review of implementation in a representative state (Massachusetts), examines the counseling requirement and a mandate that debtors complete a financial education course prior to emerging from bankruptcy. Problems include:
- provision of incorrect or insufficient information and inappropriate legal advice in counseling and financial education sessions;
- lack of access to some information and materials to consumers without Internet equipment or skills;
- inadequate services for consumers with limited English skills, especially those with first languages other than Spanish;
- financial education courses not targeted to the needs of bankruptcy filers; and
- lack of effective affordability policies.
Interviews with service providers and clients and reviews of course information and materials were used to assess the impact of the new mandates included in the controversial Bankruptcy Abuse Prevention and Consumer Protection Act.
Recommendations to improve the process include
- Fee waiver standards should be made uniform by the U.S. Justice Department and service providers should inform prospective clients of waiver availability and requirements and expedite handling of waiver requests.
- Comparative data on the records of credit counseling agencies should be compiled and disclosed by the Justice Department, and agencies should provide clear information about bankruptcy laws and alternative debt payment plans.
- Counseling and education should be made more easily available to consumers with limited Internet access or English proficiency.
- Financial education courses should be monitored by the Justice Department to ensure that courses address the particular issues facing consumers in bankruptcy and provide thorough and accurate information on key topics.
This report was developed with support from The John H. and H. Naomi Tomfohrde Foundation and the George H. and Jane A. Mifflin Memorial Fund. The report is available here.
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