Starting a New Chapter: The Role of Credit Counseling in Helping Debtors Recover from Bankruptcy

The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) includes two educational provisions which require debtors to complete an approved credit counseling course prior to filing for bankruptcy and a financial education course prior to the discharge. Recent debates have raised concerns about the counseling mandate and whether debtors are benefiting from the requirement. A multi-phase research study was launched in 2009 to investigate the impact of BAPCPA’s educational mandates. The goal was to track debtors through the entire bankruptcy process and assess the long-term impacts of the requirements on debtors’ financial well-being. This study reports the findings from the first phase of the analysis where data were collected from a national sample of debtors who participated in a bankruptcy counseling course offered by one of the largest full-service nonprofit consumer credit counseling agency in the U.S. The purpose of the study was to measure the "educational value" of the counseling and to identify specific groups of debtors who were more likely than others to benefit from the experience. The results show that overall debtors were very satisfied with their counseling experience. Moreover, their financial knowledge, attitudes, and behavioral intentions significantly improved as a result of the counseling. The effects of the counseling were primarily dependent on debtors' prior knowledge, behavior, and socioeconomic status, as well as the circumstances that resulted in their current financial problems. There was little, if any, evidence to suggest that the counseling requirement had been a burden or an administrative obstacle.