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How Effective Is Financial Education Course in Bankruptcy?

A new study has been announced finding that the financial education course required of individuals filing for bankruptcy is flawed and is of little use to many who take the course. The study was conducted by Katherine Porter, a well respected bankruptcy expert and professor of law. The study was co-authored by Deborah Thorne, associate professor of sociology and anthropology at Ohio University.

In 2005, Congress overhauled the bankruptcy law. Cincinnati Bankruptcy attorneys know the new law generally requires that individuals who file bankruptcy undergo credit counseling and debtor education courses.

The debtor education course is a requirement that must be met prior to the discharge of debt by the bankruptcy court. The course advises individuals on subjects such as household budget, money management and credit card use.

Porter says the course is standardized, with no segmentation for individuals in different circumstances. Porter conducted a study of roughly 2,000 people who filed bankruptcy between February and March 2007. Participants generally found the information useful, with 72 percent responding favorably. But only 33 percent said the information in the course might have helped them avoid bankruptcy.

Porter says the education program has flaws. The basic assumption of the course, she says, is the curriculum assumes bankruptcy is due to financial irresponsibility. She notes that many people seek relief from debt under the bankruptcy code due to circumstances beyond their control. The economy has had a dire impact on many Americans. Job loss has forced people into bankruptcy. Catastrophic health care expenses are a source of financial distress for many.

Porter speaks of a woman who suffered a heart attack. Porter says "no amount of financial education would have helped her not have a heart attack." The researcher concludes that teaching an individual to make different decisions in order to avoid bankruptcy will only work if the person is in financial distress because of the individual financial knowledge.

The government does little oversight on the standardized course and does not employ assessment tools to measure the effectiveness of the course.

The study will appear in 2011 as a chapter in the book "Financial Knowledge and Decisions," edited by Douglas Lamdin.

Source: Popdecay, "Mandatory Bankruptcy Course Has Major Flaws Says Iowa Law Prof.," Desiree Washington, 3 Nov 2010

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