NFCC Status Report: 6 Months After Bankruptcy Reform

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The National Foundation for Credit Counseling offered a six-month status report on the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act from the perspective of credit counseling services.

The bankruptcy reform bill requires debtors to participate in a credit counseling session before they can file for bankruptcy and also must take a course on personal financial management before their debts are discharged. The NFCC group surveyed its 106 member agencies to gather data for the report, which found:

* The surge in bankruptcy filings to a record one-month total of 619,000 in October 2005 just before the law took effect has made it impossible to clearly assess the law's long term impact at this time, but from a record of more than 2 million last year, bankruptcies are currently at a 20-year low and likely to end less than 1 million for the full year 2006;

* NFCC member agencies provided more than 188,000 consumers who considered a bankruptcy filing with bankruptcy counseling sessions in the first five months after the law took effect;

* Most individuals who came to NFCC agencies for pre-filing counseling were in desperate financial shape with debts that vastly exceeded their income; their biggest source of difficulty was poor money management;

* Fees were waived for those consumers who could not cover the counseling costs; the average cost for providing pre-filing counseling sessions across delivery channels (phone, Internet, and face-to-face) was $50.96. NFCC agencies received an average fee from clients of $37.71, leaving a shortfall of $13.25 per session.

* The counseling funding gap faced by credit counseling agencies threatens their ability to fulfill their new public mandate as well as maintain traditional financial counseling and education services for consumers;

* The vast majority of bankruptcy counseling services are being provided either by phone or the Internet, while only slightly more than 1 in 10 prefiling sessions involved face-to-face counseling. Of concern is that consumers might lose the option of obtaining in-person, face-to-face counseling sessions which is how an estimated 50% of regular financial counseling is conducted today; and

* Even with a historically low level of bankruptcy filings, the demand for bankruptcy-related counseling has forced some agencies to divert resources from other financial education services. The ability to serve both bankruptcy and non-bankruptcy consumers is in question.

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