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

Networks Financial Institute Working Paper 2010-WP-06

39 Pages Posted: 21 Nov 2010

See all articles by Angela C. Lyons

Angela C. Lyons

University of Illinois at Urbana-Champaign

Shawn Howard

Money Management International

Erik Scherpf

University of Illinois at Urbana-Champaign

Date Written: November 1, 2010

Abstract

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.

Keywords: Bankruptcy, financial education, credit counseling

JEL Classification: D10, D14, D18

Suggested Citation

Lyons, Angela C. and Howard, Shawn and Scherpf, Erik, Starting a New Chapter: The Role of Credit Counseling in Helping Debtors Recover from Bankruptcy (November 1, 2010). Networks Financial Institute Working Paper 2010-WP-06. Available at SSRN: https://ssrn.com/abstract=1711895 or http://dx.doi.org/10.2139/ssrn.1711895

Angela C. Lyons (Contact Author)

University of Illinois at Urbana-Champaign ( email )

421 Mumford Hall, 1301 W Greogry Dr
Urbana, IL 61801
United States
217-244-2612 (Phone)
217-333-5538 (Fax)

Shawn Howard

Money Management International ( email )

14141 Southwest Freeway, Suite 1000
Sugar Land, TX
United States

Erik Scherpf

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

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