Blogging for Change

Credit counseling helps in bankruptcy recovery

by Tanisha Warner on
2/16/2011
in Personal Finance
We believe that as a leading provider of bankruptcy counseling and education, it is our responsibility to ensure our programs are successful in empowering individuals and families to build future financial security. We are pleased to have the opportunity to measure the impact of our bankruptcy counseling and education programs through a multi-phase study.

In connection with Dr. Angela Lyons, a leading researcher in financial education and program evaluation at the University of Illinois at Urbana-Champaign, the multi-phase research study was launched in 2009 to investigate the impact of the consumer counseling and education mandates outlined in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. 

The newest phase of the study measured the long-term impacts of both the counseling and education requirements by following up with debtors after they had completed the entire bankruptcy process. The following are preliminary findings, which point to marked improvements in financial management skills and practices: 
  • Improved financial behavior post-bankruptcy – Regarding the 12 financial practices identified as necessary to successfully recover from bankruptcy, results show that debtors’ financial behavior for all 12 practices improved significantly. Overall, behavior seemed to improve by almost 30%.
  • Sustained improvement in financial behavior over time – Debtors’ financial behaviors were not only significantly improved after counseling, but remained that way 12 months after counseling, with only a slight drop-off in behavior over time.
  • Proactive approach to improving financial situation — Debtors appear to be taking steps to improve their financial situations, including: finding ways to reduce expenses, increase income, and make other lifestyle adjustments. 
  • Longer-term financial goals are being set and achieved — Debtors indicated post-bankruptcy that they had achieved, or were working towards achieving, a number of longer-term financial goals, including: saving more money, starting an emergency fund, starting a retirement fund, re-establishing credit, finding employment, starting or completing school, buying a car or home, and becoming/staying debt free. 
The first two phases of the study collected data from a national sample of consumers who participated in MMI’s bankruptcy program and measured the educational value of the counseling and education services. During this phase, debtors were monitored throughout the entire bankruptcy process. The study measured whether participants were able to put what they learned from credit counseling into practice and if they received added value by participating in the financial education course prior to discharge. Results of the study showed that participants significantly benefited from the counseling and education services offered. The study showed improvement in consumer’s financial knowledge, attitudes, and behavior with regard to financial matters. 

“Overall, the entire study has shown that throughout the bankruptcy process, debtors’ financial situations seem to be improving,” said Lyons. “The evidence from this study suggests that credit counseling may in fact be a viable mechanism to help debtors deal with their financial situation and obtain a fresh start.” 

The final report is scheduled for release this spring. To view a summary of the preliminary results and learn more about the impact of bankruptcy counseling and education on debtors’ financial well-being, visit http://www.cefe.illinois.edu/research/reports/.
 

 

Tanisha (Warner) Smith is a former communications manager at MMI.

Recommended Articles

Man sitting in front of pile of bills, trying to understand his options.
Professional Budget Advice
Make the most of every dollar and start building toward your dreams! Budget counseling is FREE and available 24/7.
Learn More
Learn more
  • MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • MMI is rated as “Excellent” (4.8/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • MMI is a member of the Consumer Federation of America (CFA), an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.