That’s the question a pair of researchers raised a few years ago, and the answer might provide insights to debtors in New York bankruptcy. Since the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act was passed, debtors have been required to complete a financial education course prior to discharge, which is not to be confused with the credit counseling requirements debtors must meet before they file. The belief behind the financial education course is that debtors’ financial problems are largely of their own making and not due to circumstances beyond their control. Consequently, the course ought to encourage financial responsibility among debtors and prevent future bankruptcies.
The researchers were interested in testing this belief, so they conducted an experiment to test debtors’ perceptions of the course’s value. To do this, the researchers compared two groups: one of debtors who filed bankruptcy in 2001 (before the course was required) and a group that filed in 2007. Both groups filled out similar questionnaires created by the Consumer Bankruptcy Project that asked whether they thought such a course would have prevented their bankruptcy.
45.5 percent of debtors from the 2001 group believed that a course would not have helped them prevent their bankruptcies. By contrast, two-thirds of the 2007 group said the course would not have helped. The researchers concluded that because the two groups were similar in terms of household income and assets, the course “falls short of debtors’ expectations and needs.”
On the other hand, the 2007 study results showed that demographic differences among debtors made a difference. For example, debtors with less education believed the course helped them as compared to college graduates, 36 percent to 22 percent. Nearly half of minorities said they benefited from the course while just over a quarter of white debtors did not. Although sex did not affect opinions much, age did, with older and younger debtors stating that the course was helpful.
Fortunately, the same 2007 debtors said they believed the course would help prevent future bankruptcies. Only 30 percent thought it would not. The researchers observed the same demographic effects on debtors’ perceptions of the course’s future value as with the past hypothetical value. The authors concluded that most debtors were pessimistic about preventing their previous bankruptcy but optimistic at preventing future filings.
The article can be found here.
It’s probably a common belief among bankruptcy lawyers that the mandatory financial education requirement that Congress inserted into the bankruptcy process a decade ago is just a hurdle for debtors to overcome on their way to discharge, but at least it’s not a particularly difficult one.
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