Just Punch My Bankruptcy Ticket

That's the title of Denver Law Professor Michael Sousa's new article exploring debtors' evaluations of the pre-filing credit counseling course and the post-filing financial management course mandated by BAPCPA. The data for the article came from in-depth interviews that Sousa conducted with 58 individuals from Colorado who filed under Chapter 7 between 2006 and 2010. Bob Lawless previously posted about another article Sousa wrote based on the interviews that discusses debtors' perceptions of bankruptcy stigma. Like Sousa's previous article, this paper carefully presents the interviews for what they are and what they can reveal about debtors' interactions with these two components of the bankruptcy process.

Sousa's findings generally confirm the limited prior research about the two courses. In fact, they may paint an even grimmer picture of the courses' usefulness. None of the debtors thought the credit counseling to be of any help, and only 2 couples (4 of the 58 debtors, or 7%) thought they had learned anything useful from the financial management course. Indeed, and one of Sousa's more interesting findings, what some debtors took from the credit counseling course contravenes Congress's aim for the course to inform debtors of all their options and thereby convince some debtors to settle their debts outside of bankruptcy. Debtors instead said the course affirmed their decision to file because it showed them how bad their situation was and provided them some psychological comfort in accepting that bankruptcy was the last remaining option.

As an aside, Sousa took a pre-filing credit counseling course and interviewed employees of credit counseling agencies. The "a day at a credit counseling agency" subpart describes the creation of his fictitious debt management plan, and also reveals that counselors thought the course of little benefit to debtors, who almost always arrived in dire financial straits. But I wonder how many debtors actually sit down in person with a counselor. My understanding is that the vast majority of debtors complete their credit counseling on a computer at home or in their attorney's office. Sousa's interviews evidence this as well. One debtor described waiting for the online course to time-out (that is, for 45 minutes to pass) so she could get her certificate. A student in my "consumer bankruptcy seminar" took the credit counseling course online as part of her final project and likewise sat around after she had read (more like skimmed) through the blocks of text for a good portion of the 30 minutes she had to wait to get the certificate. I also wonder about the cost of in-person counseling versus online counseling. If there is a cost disparity, given the course's seeming lack of usefulness, what benefit debtors do receive from in-person counseling to justify the cost differential?

Almost all the debtors did not find the post-petition course helpful. To the extent they learned any financial management techniques, it was the process of bankruptcy that changed their behavior. This finding reminded me of Lauren Willis's work on the fallacy of financial education more generally. To the extent that their financial problems are caused by financial planning missteps, perhaps the best (indeed, maybe only) way for people to change their habits is for them to "live it" to the point of having to file for bankruptcy.  

The two couples who said they found the course helpful coincidentally seemed to have improved financial situations post-bankruptcy. One couple found new employment. The other couple's bankruptcy was precipitated by a serious accident that led to a period of unemployment during which the couple charged daily expenses to credit cards. Maybe the course did help these couples, or maybe their situations simply got better enough for them to implement financial management techniques they already possessed or had learned through the process of bankruptcy itself (even if they attributed their learning to the course).

Overall, Sousa's interviews add more evidence to studies that suggest that debtors receive little benefit from either the credit counseling or financial management course and that they merely are hoops to jump through. The bankruptcy process itself and/or surviving exogenous shocks to finances may be where the learning happens.

BIBLIOGRAPHY:
Sousa, Michael E (2013). "Just Punch My Bankruptcy Ticket: A Qualitative Study of Mandatory Debtor Financial Education," Marquette Law Review, 97:391-467.

Ticket image courtesy of Shutterstock.