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Bankruptcy counseling helps cure debt addiction

by Broderick Perkins

ERATE Exclusive (3/4/2011) - Want to kick the serial debtor habit and buy a home?

Get accredited financial counseling as good as the counseling mandated by bankruptcy law.

Not only will financial counseling help get that plastic money monkey off your back, you are also more likely to enjoy a lifestyle of achieving financial goals that include buying a home.

The latest phase of an ongoing study reveals counseling required by bankruptcy law is empowering consumers to recover from a life of financial squalor and, over the long haul, end those spendthrift, squandering habits that can lead to bankruptcy.

"Overall, the entire study has shown that throughout the bankruptcy process, debtors' financial situations seem to be improving. 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," said Ivan Hand, president and CEO of Money Management International (MMI).

MMI is a credit counseling and financial education provider that commissioned University of Illinois researcher Dr. Angela Lyons, to produce "Life After Bankruptcy: The Role of Credit Counseling and Financial Education in Helping Debtors Obtain a Fresh Start."

A report is due later this year, but preliminary findings in the latest phase of the ongoing study continues to reveal the power behind counseling built into the landmark Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005.

Bankruptcy law requires 90 minutes of counseling from a government-approved organization, 180 days before you file for bankruptcy, to analyze your financial condition, discuss factors that got you into financial hot water, review plans to respond to future financial problems and even discuss your alternatives to bankruptcy.

As bankruptcy proceeds, you must enroll for a minimum of two additional hours in more exhaustive studies broken down into four categories: budget development, money management, the wise use of credit and consumer information.

The lessons pay off.

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.

Preliminary findings include:

• Improved financial behavior after bankruptcy. Twelve financial practices were identified as necessary for successful bankruptcy recovery. Overall, counseled debtors' financial behavior for all 12 practices improved by nearly 30 percent.

• Sustained improvement in financial behavior. Counseled debtors' financial behaviors not only significantly improved after counseling, the changed-for-the-better behavior remained relatively intact 12 months later.

• Counseling spawned financial proaction. Counseled debtors took steps to improve their financial situations, including, finding ways to reduce expenses, increase income, and make other lifestyle adjustments.

• Debtors set and met longer-term financial goals. Post-bankruptcy counseled debtors indicated achievements or attempted achievements in 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 or staying debt free.

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