The Bankruptcy Abuse and Consumer Protection Act was passed in early 2005 with the overwhelming support of the President, both houses of Congress and the major credit card companies. The law, which created sweeping changes in American bankruptcy law, was passed in order to reduce the possibility that consumers with heavy debts might avoid choose to avoid paying them by seeking debt relief through the courts. The Act has many provisions, but the one that may hurt consumers the most was the one provision that was intended to help – the requirement that debtors undergo mandatory credit counseling before filing for bankruptcy.
On the surface, the requirement seems to be laudable. Few people ever receive any sort of formal money management training, so a bit of counseling, even as bankruptcy approaches, might help debtors avoid further financial trouble in the future. The law was passed with the intention that, once educated, consumers would stay out of bankruptcy court in the years to come.
It hasn’t worked out that way, and the bankruptcy law is largely to blame. The law did not set a fee for this required credit counseling, but a fee of $50 was...
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