By Chris Kramer
The 2005 filing bankruptcy reform brought many new obstacles to the consumer bankruptcy process. For most people, they weren't actual bars to bankruptcy protection, just hassles that made the process more time consuming, more confusing, and more expensive.
One of those requirements was that any consumer bankruptcy petitioner, whether filing under Chapter 7 bankruptcy or Chapter 13, complete a U.S. Trustee approved credit counseling briefing before filing the bankruptcy petition.
Bankruptcy cases filed without credit counseling certificates could be dismissed, and in the early days that occurred with some disastrous results: consumers who had failed to obtain credit counseling certificates lost cars and homes when their bankruptcy cases were dismissed and the automatic stay was lifted.
Now, two years after the law was enacted and a year and a half into its application, the Government Accountability Office (GAO) has completed a study that reveals what everyone involved in the consumer bankruptcy process knew all along: the credit counseling requirement doesn't appear to serve any useful purpose.
Congress's goal in including a pre-filing credit counseling requirement was to ensure that consumers who filed bankruptcy had been fully informed and adequately considered their other options.
However, within just a couple of months after the requirement took effect, the nation's largest credit counseling agencies were delivering a disturbing message: in most cases, there were no other options. One agency reported that fewer than 4% of those seeking pre-bankruptcy credit counseling had any other realistic options.
Now, the GAO report says, "Anecdotal evidence suggests that by the time most consumers receive the prefiling counseling, their financial situations are dire, leaving them with no viable alternative to bankruptcy."
Yeah. That's what we said.
But if you're considering filing for bankruptcy protection, don't get your hopes up.
Although the GAO found that the credit counseling requirement probably wasn't benefiting anybody, the report's recommendations don't include discontinuing the requirement, or even allowing for waivers.
Instead, the GAO suggests further study to "track the outcomes of prefiling credit counseling".