Under the current law, individuals planning on declaring bankruptcy are required to attend credit counseling sessions prior to filing. But many are questioning whether this law is necessary.
In accordance with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, individuals must attend credit counseling sessions within 180 days before they are allowed to file, the Federal Trade Commission reports. These courses are intended to educate and improve the financial condition of families filing for bankruptcy after their debt has been discharged.
But some consumers and counselors are dismayed by the legislation, contending that many individuals who are filing due to circumstances beyond their control will not benefit from the sessions and that the delay in filing will only worsen their situation. For example, many Americans forced to file do so as a result of a medical emergency or unemployment rather than money mis-management.
A new study conducted by University of Illinois professor Angela Lyons - in conjunction with Money Management International - researched the effects of this law and how it impacted those who underwent counseling.
"The goal of this study is to track debtors through the entire bankruptcy process and follow up with them three to six months afterwards to assess the long-term impacts of the educational requirements on their overall financial well-being," Lyons told Illinois newspaper the Canton Daily Ledger.
According to the results, 99 percent of the 32,000 participants surveyed said the counseling sessions - which give courses on financial management skills and bankruptcy alternatives - were beneficial, the newspaper said. Additionally, those who filed for bankruptcy due to debt associated with medical bills or unemployment also noted an improvement in their financial condition after taking the courses.
Credit counseling has become a popular channel for Americans who are facing large amounts of debt and watching their credit scores fall. Consumers may also better gauge their credit health by obtaining a copy of their credit reports to examine the areas that they may be weak financially.
In addition to monitoring their credit reports, individuals can also boost their scores by creating a budget, which may help them manage their money, build their savings accounts and pay their bills on time. Recent reports show that Americans who follow a budget are often in a better financial situation than those who do not.