Readers know that I think the pre-filing credit counseling requirement is a complete joke. Atlanta, Georgia colleague Jonathan Ginsberg compares the requirement to a sick person going to the doctor, but being told they have to shell out $50 for a health class first (just to make sure they are sick and that they really need a doctor…which actually sort of sounds like an HMO). Then, before leaving the doctor’s they have to shell out another $50 for another health class which in theory is designed to ensure they do not get sick again. I imagine it would remind them to take vitamins, drink fluids and wash their hands frequently.
I do not have a huge problem with the pre-discharge debtor education requirement per se. However, the requirement itself is difficult to take seriously.
The pre-discharge debtor education is usually approximately two hours in length. It can be done in person, on the phone or over the internet. In theory, it is a starting point where a debtor can tweak or in some cases redevelop financial management skills. It is a sort of crash course in financial literacy. In theory. This assumes however, that the same factors lead debtors to the bankruptcy court.
The Joint Bankruptcy Court/Boston Bar Association Task Force on Financial Literacy for students issued a report noting that:
the lack of financial education, especially among the younger members of our society, can pose a considerable handicap, particularly in light of the overwhelming pressures to borrow and spend in our society.
Its financial literacy program is designed to teach high school age kids about "personal finances, covering budgeting, managing bank accounts, taxes, and responsible use of credit cards."
Programs like these are absolutely necessary since many young people find themselves with credit cards shortly after high school at a time when the pressure to spend is high.
But what about the debtor who finds themselves in bankruptcy because they lost their job and then they (or someone in their family) got sick and they could not afford the COBRA or health insurance payments? What about the debtor who has been struggling for years since losing a job or a suffering a reduction of income? What about the debtors who finds themselves alone after a spouse dies or after a divorce? These factors lead many – if not most debtors into bankruptcy. What about the business person who knows how to manage finances, but the business failed for one reason or another? There are people who do everything right, and yet things do go horribly wrong for completely unanticipated reasons.
For them, the debtor education course is likely to be viewed as a reinforcement of financial failure as well as an extra cost to get out a bankruptcy process they would have preferred to stay out of.
The bottom line is this: financial literacy cannot be taught in two hours. It is a life long lesson, and one that must start at an early age. A two hour course after a bankruptcy filing is a good start for folks who have never sought or learned important financial management skills. For other debtors, who are in bankruptcy for reasons far beyond their control, it is a waste of time and a waste of money.
