Fordham Law School studies pre-bankruptcy credit counseling

08 Jun Fordham Law School studies pre-bankruptcy credit counseling

On June 1, 2007, the Fordham University School of Law in New York City sponsored a roundtable discussion on the effectiveness of the pre-bankruptcy credit counseling required by the revisions to the Bankruptcy Code passed in 2005. The roundtable attendees were determined by invitation only and consisted of Bankruptcy Judges, representatives from the U.S. Trustee’s Office, the IRS, the Federal Trade Commission, the National Consumer Law Center, the Center for Responsible Lending, several consumer credit counselors and three trade organizations, law professors, and Ph.D’s in consumer and commercial law. The author of this article was the one and only consumer bankruptcy lawyer was invited to the discussion.

Topics of the discussion included whether the pre-bankruptcy credit counseling was effective in preventing bankruptcy, whether the government should or could better regulate the activities of credit counseling agencies and whether the industry was capable of self-regulation to prevent abuse or fraud. Participants presented differing viewpoints on the purpose for the timing of the pre-bankruptcy credit counseling and the number of people actually helped by the process. Some believed that as many as 5% to 7% of consumers were helped by the counseling while others felt that less than 1% received any benefit. Others believed that the pre-bankruptcy credit counseling was created solely to give creditors more time to obtain payments from consumers before the inevitable bankruptcy was filed. My own experience with clients has shown that not one consumer has learned anything new or changed their direction as a result of the counseling.

Credit counseling agencies conducting pre-bankruptcy credit counseling are required to be non-profit, but not necessarily tax-exempt. However, of the 159 agencies receiving government approval from the U.S. Trustee’s office, only about 9 are not tax-exempt entities. Note that the IRS regulates tax-exempt status and the FTC reviews companies who might be abusing that process, so there are a number of government watchdogs looking over the industry. Anyone having a complaint about a pre-bankruptcy credit counseling company or one of their employees should file a complaint with the Executive Office of the U.S. Trustee by email at, or by calling 202-514-4100, or fax 202-305-8536.

Viewpoints presented by the participants will assist the school in further research and review of the changes passed by Congress in 2005 and will lead to scholarly articles and possibly an impetus for change in the process consumers must currently undertake before filing for bankruptcy.

“ConnecticutGene Melchionne is a bankruptcy lawyer covering the entire State of Connecticut. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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