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More on Bankruptcy Reform’s Legacy: Debtor Education a Waste of Time?

After considering how the means test affected New York bankruptcy for the worse, my mind wanders to other aspects of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which was passed in 2005. Specifically, the addition of a credit-counseling requirement for debtors to complete before filing bankruptcy and a financial-management course to be completed before receiving a discharge.

According to an article in American Banker by a lawyer who helped draft the BAPCPA, these debtor-education requirements (along with everything else in the law) succeeded. The evidence he provided? “[T]here are at least 140 nonprofit agencies approved by the government to provide pre-bankruptcy counseling. There are an additional 220 nonprofit entities approved to provide education for consumers in the midst of a bankruptcy.”

That’s it. The fact that the government recognizes debtor-education entities is proof that the requirement worked. The article’s other arguments are similarly shallow.

The intelligent question worth asking is, “Do these financial-education entities deter unnecessary bankruptcies (or subsequent bankruptcies in the case of the financial management course), or are they just a waste of time for people who already need bankruptcy?”

According to a report by the Government Accountability Office (GAO), the answer is mostly the latter. It only took until 2007, two years after the BAPCPA was passed, for the government to question the education requirement’s effectiveness. The GAO addressed the following issues:

(1) The process of approving counseling and education providers

(2) The content and results of the counseling and education sessions

(3) The fees charged, and

(4) The availability of and challenges to accessing services.

Charged with these questions, the office concluded that the provider-approval system was working fine, and they were transmitting the right information to debtors as required by the statute. Somewhat surprisingly, debtors thought the information was beneficial. However, there was no empirical evidence the courses deterred bankruptcies; debtors already lacked alternatives, making the course “an administrative obstacle.” Fees, when they were assessed, were low, and there were no accessibility problems.

Likewise, a study on the financial-management course found that two-thirds of 2007 bankruptcy debtors did not think the course would have helped prevent their bankruptcies. By contrast 2001 debtors less than half of debtors held that view when asked in 2001. The 2007 debtors did apparently believe it would help in the future.

The GAO report is here, and the American Banker article is here.

The BAPCPA’s debtor-education requirements are probably not helpful to people who are struggling with their bills, but it’s not as bad as defaulting on debts or waiting for a foreclosure to happen. For help resolving those kinds of problems, talk to an experienced New York bankruptcy lawyer.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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