Bankruptcy Reform: Value of Credit Counseling Requirement Is Not Clear

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires individuals to receive credit counseling before filing for bankruptcy and to take a debtor education course before having debts discharged. Concerns were raised that the new requirements could expose consumers to abusive practices by credit counseling agencies or become barriers to filing for bankruptcy. GAO was asked to examine (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. To address these issues, GAO reviewed Trustee Program data and application case files, and interviewed a wide range of individuals and groups involved in the bankruptcy process. GAO found that the Trustee Program’s approval was designed to help ensure statutory and program requirements were met, and content of the required credit counseling and debtor education sessions generally complied with such requirements. While participants believed the education requirement to be beneficial, the value of the counseling requirement is not clear. The fees and supply of counseling appear to meet reasonable standards, and efforts are under way to address specific challenges for some consumers. GAO recommended that the Department of Justice’s U.S. Trustee Program (1) develop the capability to track and analyze the outcomes of prefiling credit counseling, and (2) issue formal guidance on what constitutes a client’s “ability to pay.”