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Posted on October 17, 2008

The Effect of Bankruptcy Counseling and Education on Debtors’ Financial Well-Being: Evidence from the Front Lines

Dr. Angela Lyons-University of Illinois at Urbana-Champaign
Tommye White and Shawn Howard-Money Management International

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was passed by Congress in 2005. The legislation includes two educational provisions. First, debtors are now required to complete an approved credit counseling session prior to filing for bankruptcy. After filing for bankruptcy, they are then required to complete an approved financial education course before they are able to discharge their debts. These requirements were adopted to ensure that consumers were able to make an informed choice about bankruptcy, its alternatives, and consequences. They were also included to provide debtors with the financial skills necessary to better manage their money and avoid future financial problems.

In 2006, Money Management International, Inc. (MMI) launched a multi-phase research study to measure the educational value of its bankruptcy counseling and education services. The study was motivated by the following research questions:

• Does bankruptcy counseling and education increase debtors’ level of financial knowledge?
• Does bankruptcy counseling and education assist debtors in improving their financial behaviors?
• Do debtors benefit from both the counseling and education requirements? Or, does one requirement appear to be more effective than the other?

To provide insight into these questions, MMI collected quantitative and qualitative data from clients who participated in its telephone bankruptcy counseling and education courses. Between July and December 2006, pre- and post-tests were administered to measure changes in clients’ financial knowledge, current and intended behaviors, and overall satisfaction with the counseling and education. Clients were also asked about their current financial situation, the reasons for their financial problems, and the steps or actions they were planning to take to better manage and improve their finances. Overall, the findings show that debtors’ financial knowledge and behavioral awareness and intentions improved as a result of both the counseling and education.

To download a complete copy of the report and learn more about the impact of bankruptcy counseling and education on debtors’ financial well-being, click on "View Attachment" below. To learn more about Money Management International, visit

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