Bankruptcy Article of the Week
New Study Reveals Difficulties of Assessing Credit Counseling Success
In May of this year, the Government Accountability Office (GAO) issued a report tellingly titled, "Bankruptcy Reform: Value of Credit Counseling Requirement is Not Clear". That report confirmed that the pre-bankruptcy credit counseling requirement didn't seem to be changing anything, stating, "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."
The GAO also noted that tracking outcomes was not part of the statutory mandate, and that at the time of the study no such tracking was taking place. The report pointed out that the lack of reliable outcomes information prevented policymakers and program managers from determining whether the statutory requirement was really serving to inform consumers of their options, and recommended that the Trustee Program "develop a mechanism that would allow the program or other parties to track the outcomes of prefiling credit counseling".
Now, the Trustee Program has released a study undertaken and published by the RAND Corporation at the request of the Executive Office of the U.S. Trustee (EOUST). The three primary questions under consideration were (and remain):
- What constitutes effective credit counseling in the prebankruptcy context?
- What are appropriate operational measures of effective prebankruptcy credit counseling?
- Does the mode of delivery of prebankruptcy credit counseling influence the adequacy and effectiveness of counseling?
The primary determination of the study seems to have been that we are currently lacking adequate information even to formulate good criteria for tracking outcomes. RAND points out that the USTP's first step should be to explicitly define the goals of prebankruptcy credit counseling. The report assumes, as did the GAO report, that Congress intended to ensure that the debtor was made aware of the range of options and associated risks before filing for bankruptcy protection.
Even with clearly defined goals, however, measurement of "success" is difficult. Everyone from credit counseling agencies to consumer bankruptcy attorneys to the Government Accountability Office has advanced the view that the vast majority of prebankruptcy credit counseling participants have already reached the financial point of no return, and that bankruptcy is, indeed, the best (and perhaps only) option for many of them. Thus, program success cannot be measured based on successful avoidance of bankruptcy. In fact, the report goes so far as to say that the decision not to file for bankruptcy in such circumstances could be the result of poor credit counseling!
Although RAND made an extensive review of literature related to financial education courses, adult education, modes of delivery and success rates, the ultimate conclusion was that little if any of this data was instructional when it came to assessing the usefulness of prebankruptcy credit counseling programs. Extensive input from organizations representing and comprised of credit counseling professionals led to general agreement that the development of specific metrics will be difficult. In short, it seems that all we know after two studies and nearly two years is that the credit counseling requirement isn't helping much and requires further study.
Did You Know...
that we've created an abbreviated means test to help you estimate whether your client can qualify for Chapter 7 bankruptcy?
That's right! Simply log in to your SFT Account and click on the 'Quick Means Test' button.
Upon doing so, you will see fields for the Total # of Family Members, Total # of Vehicles, Zip Code, 6 Months Income, Monthly Expenses, Total Unsecured Debt, Monthly Priority Unsecured Debt Payments, and Monthly Secured Debt Payments.
Fill in these eight fields with the most accurate financial data that you have for your client and then press the 'Get Results' button for our estimated result.
Please remember that this is just an estimate to give you an idea of your client's financial situation and that you must complete a full Means Test Analysis before making a final determination.
Got questions? Give us a call at (800) 435-9138. We're more than glad to help out and answer any questions you may have.
Client Inserts Update
The demand for our client inserts has been so high that we've had to place a third order to our printer.
With more client inserts soon on the way to our Chicago office, don't forget to order more credit counseling and debtor education inserts if you haven't already done so.
How can you order more inserts again? Simply call (800) 435-9138 or shoot us an email requesting more client inserts to info@startfreshtoday.com, and we'll send them out to you as soon as possible.
Once again, all we ask is that you include your new inserts in your client intake folders. Thanks again.
Kevin's Corner
Practice Management Tip of the Week:
"Learn to listen.
"The first 30 seconds of every conversation with a prospective client should be devoted to paying attention to exactly what he or she wants to talk about. Those urgent concerns will provide your best insight into what's motivated that potential client to contact you, and what will motivate him to take the next step by making a commitment to come in to your office.
"Even though you've undoubtedly heard it all before, don't change the subject. If your caller's main concern is creditor harassment, then that's your main concern as well. And if he's worried about losing his house, ask questions about his mortgage.
"Of course, you'll have to ask basic questions to pre-qualify the caller, but keep them to a minimum. The initial conversation should be about giving your future client the opportunity to talk about what's most on his mind.
"Sometimes, that means asking questions when you already know the answer, or investing the time to let a prospect repeat himself about the issues he finds most pressing. Remember that those are the issues that will carry him along to the next step, and don't try to redirect.
"In next week's newsletter, we'll talk about how to formulate the kind of questions that will keep your relationship with your prospective client moving forward and help motivate him to take the next step."
- Kevin Chern
President, Start Fresh Today
The Numbers Game
U.S. consumer bankruptcy filings were up 17.3 percent nationwide last month as compared to this past July.
Utilizing data from the National Bankruptcy Research Center (NBKRC), the American Bankruptcy Institute (ABI) reported late last week that there were 74,607 overall consumer bankruptcy filings in August. In comparison, there were 63,600 consumer bankruptcy filings in July.
Last month's number of consumer bankruptcy filings was also 31.2 percent higher than the overall total of consumer bankruptcy filings in August of 2006.
As these recent statistics and the 2007 first quarter numbers seem to indicate, bankruptcy filings are getting back to pre-BAPCPA levels, and the credit industry's intention with the 2005 law reform is ultimately not working out in the long run.
On the Bankruptcy Calendar
Here is a list of bankruptcy events that may be taking place in an area near you!
- 9/25 - Bankruptcy Views from Inside the Beltway at University of Chicago Graduate School of Business (Chicago, IL)
- 10/12 - ABI Educational Program at NCBJ at the Orlando World Marriott (Orlando, FL)
- 11/12 - Consumer Bankruptcy Conference at Troy Marriott (Troy, Michigan)
- 12/6-12/8 - ABI Winter Leadership Conference at Westin Mission Hills Resort (Rancho Mirage, CA)
Visit the American Bankruptcy Institute (ABI) Web site for more information on these upcoming events. Simply click on the 'Meetings & Events' link at the top of the homepage to get started.