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Study Suggests Mandatory Financial Counseling During Bankruptcy May Help

June 21, 2010

One criticism of the 2005 bankruptcy reform law is its requirement that bankruptcy filers attend mandatory credit counseling before being allowed to fie, and complete a financial education course at the end, before they discharge their debts. Our Fontana individual bankruptcy lawyers have heard criticisms arguing that this is patronizing; adds unnecessary administrative obstacles; and unfairly targets filers who may be in financial trouble through no fault of their own, such as those with medical debts. To assess whether these and other criticisms are true, Professor Angela Lyons of the University of Illinois and two colleagues launched a multi-part study looking at the effectiveness of the counseling requirements. The results of the first phase were recently published by Money Management International, the university announced June 15.

Lyons and her colleagues are tracking people who filed for bankruptcy throughout the bankruptcy process, then plan to follow up three to six months after the bankruptcy is over. The newest publication (PDF) focuses only on the educational value of the initial credit counseling session, which is 60 to 90 minutes and must be completed before the bankruptcy can be filed. During that session, potential filers learn basic personal finance; take stock of their own finances, including debts and assets; and look for ways to improve their finances by adding income or cutting expenses. The researchers then surveyed participants to gauge how they felt about the counseling. More than 99 percent said the counseling was helpful and improved their knowledge, future intentions and attitudes. Not surprisingly, researchers also found that most filers had multiple reasons for going into bankruptcy, but that filers with all types of problems found the counseling helpful.

As Yorba Linda personal bankruptcy attorneys, we're happy to hear that the counseling is helping the majority of filers. We opposed the 2005 reform law and continue to have significant misgivings about its effects, including the increased administrative hurdles it requires. But if this law ends up benefiting bankruptcy filers by helping them make good financial choices, we're happy to celebrate that aspect of it. In our experience, bankruptcy is not a decision that most people make lightly or without an emotional struggle. This makes us concerned about the mandatory credit counseling, which could implicitly or explicitly tell filers they should be ashamed of being in bankruptcy, or of the actions that led them there. Unfortunately, shame keeps a lot of filers from seeking help before the damage to their financial lives becomes large or irreversible. We'd prefer official bankruptcy rules that do not discourage people who need help from seeking it.

Howard Law PC is an experienced bankruptcy law firm based in Anaheim. We represent individuals and couples seeking bankruptcy protection through Chapter 7, Chapter 13 or other types of bankruptcy. Many people who come to our Huntington Beach consumer bankruptcy lawyers are being hounded by creditors, with constant phone calls and messages. A bankruptcy filing pulls the plug on those creditors, because as soon as you officially file for bankruptcy, a legal device known as an automatic stay prevents creditors from calling you except through your attorney. When creditors violate that stay, you can sue them to show that you take your rights seriously. Filing for bankruptcy is never easy, but our lawyers stand by clients' sides as they navigate the process and begin to put their financial lives back together.

Howard Law offers free, confidential consultations, so you risk nothing by speaking to us about your rights and your case. To set up a consultation, please contact us through the Internet or call 1-800-872-5925.