The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires individuals to receive credit counseling before filing for bankruptcy and to take a debtor education course before having debts discharged. Concerns were raised that the new requirements could expose consumers to abusive practices by credit counseling agencies or become barriers to filing for bankruptcy. GAO was asked to examine (1) the process of approving counseling and education providers, (2) the content and results of the counseling and education sessions, (3) the fees charged, and (4) the availability of and challenges to accessing services. To address these issues, GAO reviewed Trustee Program data and application case files, and interviewed a wide range of individuals and groups involved in the bankruptcy process.
Recommendations for Executive Action
|Department of Justice||1. To help assess the merit of the Bankruptcy Act's prefiling counseling requirement, the Trustee Program should develop a mechanism that would allow the program or other parties to track the outcomes of prefiling credit counseling, including the number of individuals issued counseling certificates who then file for bankruptcy. This may involve working in conjunction with the Administrative Office of the U.S. Courts to ensure that the unique certificate numbers issued by the Trustee Program can be linked to bankruptcy petitions filed with the courts.|
|Department of Justice||2. To clarify the Bankruptcy Act's requirement that prefiling credit counseling and predischarge debtor education be provided regardless of a client's ability to pay, the Trustee Program should issue formal guidance on what constitutes "ability to pay." In developing this guidance, the program should examine the reasons behind the significant variation among providers in waiving fees. In addition, while this guidance should set a minimum benchmark for when fees should be reduced or waived, it should be designed so as not to limit or discourage providers who may wish to waive fees for more clients than qualify under the minimum benchmark.|