In a previous post, I had written about the harsh consequences (i.e. dismissal) for debtors who fail to obtain pre-bankruptcy credit counseling.  In that post I had not really discussed the substance of or usefulness of credit counseling.

The general consensus among bankruptcy lawyers has been that the credit counseling requirement is pretty much a waste of time.  Virginia Beach bankruptcy lawyer Tommy Smith writes about the credit counseling requirement in Blawg De Novo that requiring debtors to go to counseling before filing bankruptcy was a little like telling someone that was sick they could go to the doctor to get medicine, but before they go to the doctor, they have to take a health class for $50, and then a second health class for another $50 after receiving the diagnosis.

Similarly, Massachusetts bankruptcy lawyer Bill McLeod points out an inherent flaw in the credit counseling requirement - one which I see regularly - by the time an individual makes the decision to seek advice from a bankruptcy lawyer, it is far too late for credit counseling.  In an ideal world, individuals would seek counseling before their small financial problems became insurmountable, but, unfortunately, that is not how human nature works.

If the goal of mandatory credit counseling is to prevent bankruptcy filings, it is not working.  NACBA (National Association of Consumer Bankruptcy Attorneys) did a study earlier this year and only a tiny fraction of those receiving credit counseling ended up not filing bankruptcy.

I personally have less of an issue with the pre-discharge budget counseling than do my colleagues Tommy Smith or Bill McLeod.  Pre-discharge counseling comes close to the end of the process when debtors are beginning to see some light at the end of the tunnel.  I suspect that mentally and emotionally they may be more receptive to budget and credit counseling (although it would be interesting to see a long term study that looks into the impact of pre-discharge counseling).

For most of my clients, the $50 pre-filing cost and the $50 pre-discharge costs basically amount to a hidden "bankruptcy tax."  Given that bankruptcy filers watch every penny, it seems unfair to burden them with credit education requirements that may be a complete waste of time.

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