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Enjoyable but not Educational? Debtor Financial Management

posted by Katie Porter

In May, the Executive Office for the U.S. Trustee released another of the studies mandated by the new bankruptcy law. I expressed optimism in this symposium piece that this research may be a bright spot to emerge from BAPCPA but the results so far have been quite mixed (the pretty good and the awful). The latest study purports to evaluate the postbankruptcy financial education that all individuals with consumer debts are required to complete to receive a discharge. The study considered three curricula: one developed by the Chapter 13 trustees (TEN), one developed a private credit counseling agency, and the EOUST's own program.

Across these providers, 97 percent of bankruptcy debtors reported that they would recommend the program to others and 97 percent agreed with the statement that their overall ability to manage their finances had improved as a result of the educational course. This is consistent with a finding from the Consumer Bankruptcy Project that Dr. Deborah Thorne and I reported here--debtors seem to believe that financial education is useful. However, there were very, very few measurable improvements in debtor's actual financial knowledge after the course and only about 22 percent of debtors who could be interviewed three months later had adopted any recommended change to their financial practices. The findings seem to suggest that while financial education makes people feel optimistic about their financial prospects, it may have a much, much more limited effect on knowledge and behavior. The policy take-away remains ambiguous. Like so many other things, whether bankruptcy financial education continues will probably turn more on politics and public perception than hard evidence in either direction.

Comments

My wife is a teacher and she will state that the key to mastery of any material is repetition. One two hour class is not going to make any huge impact in folks' financial lives. It needs to start with young people from the parents and the schools and to continue. In years past, parents would teach their kids about money but with today's complex financial products, the parents do not understand enough to teach their kids anything. It needs to be a bit more systematic.

Most people I talk to say that they gave out some good information. My sense is that most of them it’s "in one ear and out the other". I have never been to one and maybe should but I wonder if they just give some info on how to make it post-bankruptcy. For people in 13s, I think the type of info that would be most important at that point is how to make it while you are in bankruptcy. You have to think and deal with financial situations differently. Maybe properly, meaning, not running to credit to solve a temporary “hiccup” in cash flow; maybe keeping that car for 7-10 years instead of just 3-5 years. There are some pitfalls in bankruptcy and the job of informing the debtors lies squarely on the BK Attorney. No doubt. But if there were a mix of information given, on how to properly identify and deal with the complexities of the “financials” and also counseling a bit on how to “survive” bankruptcy. I think that approach would be a prudent mix. The debtors would get it “hopefully” from their Attorney and or staff and the same info would be reinforced by the class.

For debtors in chapter 7, I do believe that it still should be mandatory. They have to have that info even if it does not eventually change their behaviors. I think the chance is greater that they adopt and apply the lessons taught and you have given them every possible chance to succeed. I think that most of the time, the fact that (in 7) it is their “get out of jail free card”, is enough. Most people swear off the “hard” stuff forever, and my response is that credit is like a muscle. Do the right things and it will grow; do the wrong things and it will get flabby. I think in that regard a statute in bankruptcy that mandated the credit reporting agencies to report bankrupt debts properly would help as well. (off subject). Instead of having “discharged in bankruptcy”, “30 days late” and “charge off” all in one or several credit reports. Who knows how ole’ “Isaac” calculates?

It looks like this is the only sub. I can comment on so far today. Don’t know too much about “adjunct” professors. Sorry. It’s cool. I’ve got a mound of former “trees” to work thru today. Can you believe that? In this day and age, I am still dealing with the “white” stuff. Boo! :(

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