Research Shows Debt Counseling May Help Debtors Improve Financial Situation

One of the big changes to the Bankruptcy Code implemented in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is the requirement for debtors to attend mandatory credit counseling before filing the bankruptcy petition and to complete a financial education course before receiving their discharge. This law affects all Sacramento Area residents who have considered filing for Chapter 7 or Chapter 13 bankruptcy and serves as an absolute bar to discharge if not complied with.

Critics of this requirement argue that the mandatory classes add needless barriers to discharge, are condescending, and put debtors who may be experiencing economic distress through no fault of his or her own, like those who have been laid-off or incurred substantial medical debts, in the same category as those who are unable to manage their financial affairs. Supporters of the mandatory classes mark the educational value these courses provide to a debtor. To evaluate whether these mandatory classes warrant any justification, the University of Illinois along with Money Management International (MMI), the largest nonprofit, full-service credit-counseling agency launched a multiphase study that “tracks debtors through the entire bankruptcy process…to assess the long-term educational requirements on their overall financial well-being.”

Preliminary results of the study, published today by the University of Illinois, indicate that 99 percent of debtors noted improvements in their attitudes, behavioral intentions, and financial knowledge after taking the mandatory 60-90 minute pre-filing counseling course. The pre-filing classes focus on rudimentary personal finance concepts that assist a debtor look for ways to cut expenses or increase their income in order to improve their economic situation. The study also noted that numerous factors exist which play into an individual’s decision to file for bankruptcy. These initial results show that the mandatory classes may be a legitimate way to help debtors deal with their finances and obtain a fresh start after bankruptcy.

In my experience, an individual’s decision to file Chapter 7 or Chapter 13 is made after intense deliberation and internal frustration. This is why I ordinarily do not support a requirement that creates an additional element to the filing process that makes it more difficult than it should be. However, as a Sacramento Bankruptcy Attorney, I am elated to see that multiple avenues exist to improve the financial status of my clients after they have decided to file for bankruptcy. While I may not support the administrative requirements imposed by BAPCPA, I am happy to see that these hurdles may wind up serving a purpose that actually improves the long term financial prospects of a debtor.

The Law Offices of Matthew D. Roy is a bankruptcy law firm located in downtown Sacramento. We serve couples and individuals seeking protection through Chapter 7, Chapter 13, or other types of bankruptcy. We offer free, confidential consultations, so you have no risk taking the time to call us and discuss your financial situation. To set up a consultation, send us an e-mail or call 1-916-361-6028.