After the legislators passed the bankruptcy reform laws in 2005, it was required that debtors filing bankruptcy take a financial management course upon completion of their bankruptcy case. But is the mandatory financial management course really as effective as the architects of bankruptcy reform imagined? Well according to a study of 2,000 debtors who filed for bankruptcy only 33 percent of debtors said that the financial management course would have helped them avoid bankruptcy if they had the information provided in the course before they ran into financial problems which pushed them into bankruptcy.
The reality is that many debtors are not filing bankruptcy because they are financially irresponsible and mismanaged their money; they are filing bankruptcy because something out of their control has happened. Job loss, medical emergencies, divorce and/or the death of a spouse can all have devastating impacts on a person’s ability to pay their debts. The impact can be so large that an individual may need to file bankruptcy in order to get out from under the weight of the debt.
Do these people really benefit from the mandatory financial management course? In many cases they don’t benefit because they already have the basics down; but were just hit with unfortunate circumstances and needed bankruptcy to help them get a fresh financial start. Maybe bankruptcy’s mandatory financial management course would be more effective if it was tailored to the individual circumstances of each debtor instead of being administered based on the assumption that most bankruptcy debtors lack financial literacy.