United States Government Accountability Office

GAO Report to Congressional Requesters

BANKRUPTCY 

REFORM 

Value of Credit 

Counseling 

Requirement 

Is Not Clear 

April 2007 

 

GAO-07-203 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2007

BANKRUPTCY REFORM 

Value of Credit Counseling Requirement 

Highlights of GAO-07-203, a report to Is Not Clear 

congressional requesters 

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.

What GAO Recommends

The Department of Justice’s U.S.

Trustee Program, which is 

responsible for the new 

requirements, should (1) develop 

the capability to track and analyze

the outcomes of prefiling credit 

counseling, and (2) issue formal

guidance on what constitutes a

client’s “ability to pay.” The

Trustee Program agreed with 

GAO’s recommendations. 

The Trustee Program’s process for approving credit counseling and debtor 

education providers was designed to help ensure that providers met 

statutory and program requirements and demonstrated evidence of 

proficiency, experience, and reputability. The Bankruptcy Act set certain 

standards for providers, and the program’s July 2006 rule clarified these 

standards and formalized the application review process. As of October 

2006, the Trustee Program had approved 153 credit counseling and 268 

debtor education providers. These providers have had few formal 

complaints lodged against them, and federal and state law enforcement 

authorities with whom we spoke did not identify any recent enforcement 

actions against them under consumer protection laws. No provider 

approved by the Trustee Program had had its federal tax-exempt status 

revoked, although four providers’ tax-exempt status was being examined by 

the Internal Revenue Service. 

The content of the required credit counseling and debtor education sessions 

generally complied with statutory and program requirements. Participants in

the bankruptcy process largely believed the education requirement—a 

general financial literacy course—to be beneficial. However, the value of the 

counseling requirement is not clear. The counseling was intended to help 

consumers make informed choices about bankruptcy and its alternatives. 

Yet anecdotal evidence suggests that by the time most clients receive the 

counseling, their financial situations are dire, leaving them with no viable 

alternative to bankruptcy. As a result, the requirement may often serve more

as an administrative obstacle than as a timely presentation of meaningful 

options. Because no mechanism currently exists to track the outcomes of 

the counseling, policymakers and program managers are unable to fully 

assess how well the requirement is serving its intended purpose. 

Providers typically charge about $50 per session and evidence suggests fees 

are being waived as appropriate for clients unable to pay, as the Bankruptcy 

Act requires. Neither the statute nor Trustee Program guidance defines what 

constitutes “ability to pay,” and policies vary among providers. Formal 

guidance on this issue would have several benefits, including ensuring 

compliance with a minimum benchmark for waiving fees. 

The number of counseling and education providers that have been approved 

appears sufficient to allow consumers to access these services in a timely

manner. In-person sessions are available in most parts of the country, 

although the great majority of clients fulfill the requirements via telephone 

or Internet. The Trustee Program has efforts under way to help mitigate the 

challenges speakers of foreign languages can face in accessing services. 

Further, the bankruptcy courts have taken steps recently to help better 

ensure that filers are aware of the potential consequences of filing for 

bankruptcy without the required counseling certificate. 

www.gao.gov/cgi-bin/getrpt?GAO-07-203.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Yvonne D. 

Jones at (202) 512-8678 or

JonesY@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 5

The Trustee Program’s Process for Screening Providers Is 

Designed to Help Ensure Statutory and Program Requirements 

Are Met 9 

Counseling and Education Sessions Meet Statutory and Program 

Requirements, but a Wide Range of Observers Question the 

Value of the Counseling Requirement 19 

Provider Fees Are Generally Considered Reasonable, Although Fee 

Waiver Policies Vary 28 

Supply of Providers Appears Sufficient and Actions Under Way 

Address Challenges Some Consumers May Face Fulfilling the 

Requirements 32

Conclusions 38

Recommendations 40

Agency Comments 41 

Appendix I Scope and Methodology 44 

Appendix II Implementation of Counseling and Education 

Provisions in Alabama and North Carolina 48 

Appendix III Comments from the Department of Justice 50 

Appendix IV GAO Contact and Staff Acknowledgments 54 

Page i GAO-07-203 Bankruptcy Credit Counseling
Abbreviations 

FTC Federal Trade Commission 

IRS Internal Revenue Service 

This is a work of the U.S. government and is not subject to copyright protection in the 

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reproduce this material separately. 

Page ii GAO-07-203 Bankruptcy Credit Counseling
United States Government Accountability Office

Washington, DC 20548 

April 6, 2007

Congressional Requesters

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 

(Bankruptcy Act) amended the federal bankruptcy code to require 

(1) individuals to receive budget and credit counseling from an approved 

provider before filing a petition in bankruptcy and (2) bankruptcy 

petitioners to complete an instructional course on personal financial 

management in order to have their debts discharged.1 According to the 

legislative history of the act, one of the goals of the prefiling counseling 

requirement, which became effective on October 17, 2005, is to ensure that

consumers understand the options available to them and the 

consequences of filing for bankruptcy. However, the requirement raised a 

number of concerns. In recent years, congressional committees and 

federal agencies have investigated some credit counseling agencies for 

alleged unfair and deceptive practices and were concerned that these 

practices, which included steering clients into repayment plans that 

benefited creditors and counseling agencies but not necessarily debtors, 

would affect those filing for bankruptcy protection. In addition, some 

members of Congress and other parties have been concerned that the cost 

and availability of counseling and education services could serve as 

barriers to those seeking to file for bankruptcy. In response to these 

concerns, Congress included in the Bankruptcy Act requirements for 

providers of both credit counseling and debtor education courses. The 

providers must meet certain criteria and obtain approval from the 

Department of Justice’s U.S. Trustee Program (the Trustee Program), 

which oversees the bankruptcy process for most federal judicial districts 

and acts to ensure compliance with applicable laws and procedures.2

 1

 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, § 106, Pub. L. No. 

109-8, 119 Stat. 23, 37-42 (2005) (amending various sections of Title 11). For the purposes of

this report, hereafter we refer to the prefiling budget and counseling requirement as the

credit counseling requirement and the predischarge personal financial management course 

as the debtor education requirement. 

2

 In this report we use the term provider to refer to a provider of prefiling credit counseling 

or predischarge debtor education that has been approved by the Trustee Program.

References to the Trustee Program in this report refer collectively to the United States 

Trustees and the Executive Office for United States Trustees. 

Page 1 GAO-07-203 Bankruptcy Credit Counseling
In light of these issues, the objectives of this report are to examine (1) the 

actions taken by the Trustee Program to approve credit counseling and 

debtor education providers; (2) the content and results of the counseling 

and education sessions; (3) the fees providers charge for counseling and 

education services, and the extent to which these services are provided 

regardless of clients’ ability to pay; and (4) the availability of approved 

counseling and education services and the challenges consumers may face 

in receiving these services. 

To meet these objectives, we reviewed relevant provisions of the federal

bankruptcy code as amended by the Bankruptcy Act and reviewed the 

Trustee Program’s written policies, rules, guidance, and procedures for 

approving credit counseling and debtor education providers. We also 

collected and analyzed data provided to us by the Trustee Program, 

including data on the number, location, and characteristics of providers. 

To determine whether the Internal Revenue Service (IRS) had revoked the 

section 501(c)(3) tax-exempt status under the Internal Revenue Code, or 

taken other enforcement actions, against providers, we met with IRS 

officials and reviewed the agency’s publicly available information. We also

reviewed a nonprobability sample of the Trustee Program’s application 

case files for 43 providers that represented the majority of counseling and

education sessions conducted nationwide. We did not do a probability 

sample because of the limited size of the sample we could review and 

because we wanted to ensure that the small sample included all of the 

largest providers and specific numbers of other types of providers. The 

case files we reviewed included, among other things, the providers’ initial 

applications, protocols, curricula and other guidance used by counselors 

and instructors, written materials and disclosures provided to consumers, 

fee schedules, and correspondence between the providers and the Trustee 

Program. To facilitate the case file review, we developed a data collection 

instrument to record specific information for each case file reviewed. We 

also reviewed relevant portions of the Federal Rules of Bankruptcy 

Procedure and the standardized forms required by the courts to file a 

bankruptcy petition. Further, we reviewed Web sites of selected 

bankruptcy courts. We also collected information related to the prefiling 

requirement from seven judicial districts and analyzed a survey of 

bankruptcy judges that was conducted by the Federal Judicial Center. 

Finally, we interviewed representatives of the Trustee Program; Federal 

Trade Commission (FTC); IRS; Administrative Office of the United States 

Courts; National Association of Attorneys General; American Bankruptcy 

Institute; National Association of Consumer Bankruptcy Attorneys; 

National Association of Bankruptcy Trustees; National Association of 

Chapter 13 Trustees; trade organizations representing creditors, such as 

Page 2 GAO-07-203 Bankruptcy Credit Counseling
the American Bankers Association and the Financial Services Roundtable;

consumer organizations, such as the Consumer Federation of America and 

the National Consumer Law Center; academic researchers; and 10 

providers of credit counseling or debtor education that had been approved

by the Trustee Program. 

We conducted our review from February 2006 through March 2007 in 

Washington, D.C., and Boston, Ma., in accordance with generally accepted 

government auditing standards. A more extensive discussion of our scope 

and methodology appears in appendix I. 

The Trustee Program’s process for approving credit counseling and debtor 

education providers was designed to ensure that applicants met statutory 

and program requirements and demonstrated evidence of proficiency, 

experience, and reputability. The Bankruptcy Act requires that providers 

meet certain minimum requirements designed to help ensure that 

providers are adequately qualified and to prevent conflicts of interest and 

abusive practices. To implement these requirements, the Trustee Program 

adopted application forms and an interim final rule that set forth 

application procedures and criteria that credit counseling and debtor 

education providers must meet. Relatively few concerns have been raised 

about the competence of the providers approved thus far. Federal and 

state law enforcement officials with whom we spoke did not identify 

enforcement actions related to consumer protection issues against any 

providers subsequent to their approval. As of March 2007, no provider 

approved by the Trustee Program had had its federal tax-exempt status 

revoked, but four providers’ tax-exempt status was being examined by 

IRS. A Trustee Program official said that the program had approved these 

four applicants because, after careful review, the program was satisfied 

that they met the statutory and program requirements for quality and 

character. 

Results in Brief 

Our review of selected providers’ application files, curricula, and 

supporting materials showed that the content of the credit counseling and

debtor education sessions generally complied with statutory and Trustee 

Program requirements. According to the Bankruptcy Act, prefiling credit 

counseling sessions should provide an analysis of the client’s current 

financial condition and the factors that led to it, an individualized budget 

analysis, and assistance in developing an appropriate action plan. 

According to providers and Trustee Program data, the great majority of 

debtors fulfill the credit counseling requirement by telephone or via the 

Internet. We did not find evidence that agencies that provided prefiling 

Page 3 GAO-07-203 Bankruptcy Credit Counseling
credit counseling discouraged clients from filing for bankruptcy and very 

few clients appeared to be entering into repayment plans administered by 

these agencies. However, it is not clear whether the prefiling requirement 

is serving its intended purpose—as described in the Bankruptcy Act’s 

accompanying conference report—of helping consumers make an 

informed choice about bankruptcy and its alternatives. Anecdotal 

evidence suggests that by the time most consumers receive the prefiling 

counseling, their financial situations are dire, leaving them with no viable

alternative to bankruptcy. As we have reported in the past, data on 

program outcomes are essential for appropriate oversight and decision 

making. However, the Trustee Program does not track and monitor the 

outcomes of counseling sessions, including how often they are followed by

a bankruptcy filing, in large part because this is not required under the 

program’s statutory responsibilities. Better data on the outcomes of 

counseling sessions could help program managers and policymakers 

determine how well the prefiling requirement is serving its intended 

purpose. Finally, we found that participants in the bankruptcy process and 

other experts believed that the debtor education course was generally a 

useful tool to improve debtors’ financial literacy.

Although comprehensive data were not available, evidence from our 

review suggests that counseling and education sessions typically cost 

about $50 or less, and industry observers and consumer advocates we 

spoke with generally considered this amount to be reasonable. Providers’ 

policies for waiving fees varied and Trustee Program data on the three 

largest providers showed significant variations in the proportion of clients 

whose fees were waived—from 4 percent to 26 percent for credit 

counseling sessions and from 6 percent to 34 percent for debtor education

courses. The Bankruptcy Act requires that providers charge reasonable 

fees and offer their services without regard to an individual’s ability to pay, 

but does not specify what constitutes a “reasonable” fee or “ability to pay.” 

The Trustee Program did not promulgate rules or provide specific 

guidance about what constitutes a debtor’s ability to pay in order to give 

providers the flexibility to respond to market conditions. However, 

formalized guidance would help reduce uncertainty among providers 

about when to waive fees and would provide a minimum benchmark for 

reducing or waiving fees. 

Despite initial concerns, enough counseling and education providers have 

been approved to allow consumers to access these services relatively 

easily and in a timely manner. As of October 2006, the Trustee Program 

had approved 153 credit counseling and 268 debtor education providers. 

Three large nationwide organizations represent about half of the market 

Page 4 GAO-07-203 Bankruptcy Credit Counseling
for both of these services. In-person counseling and education are not 

readily available in certain parts of the country, but even where these 

services are available, the great majority of debtors seek to fulfill the 

requirements by telephone or via the Internet. Anecdotal evidence 

suggests that certain populations, such as those whose primary language is

not English, may face challenges accessing counseling and education 

services. The Trustee Program is undertaking steps to make it easier to 

identify providers that offer translation services and services in specific 

foreign languages. Some individuals, particularly those not represented by

an attorney, file bankruptcy petitions without having met the prefiling 

credit counseling requirement. Since the Bankruptcy Act became effective, 

the bankruptcy courts have taken measures—on their Web sites and filing 

forms—to make the prefiling requirement more conspicuous to filers. 

Debtors who fail to fulfill the prefiling counseling requirement can face a 

variety of consequences, such as a delay in receiving the automatic stay 

that prevents creditors from continuing to seek payment. 

This report makes two recommendations. First, in order to help 

policymakers assess the value of the Bankruptcy Act’s counseling 

requirement, we recommend that the Trustee Program 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. 

Second, to clarify the Bankruptcy Act’s requirement that the required 

counseling and education be provided regardless of a client’s ability to 

pay, we recommend that the Trustee Program issue formal guidance on

what constitutes “ability to pay.” 

We provided a draft of this report to the Administrative Office of the U.S. 

Courts, Department of Justice, and IRS, which provided technical 

comments that we incorporated as appropriate. In addition, the 

Department of Justice provided written comments, in which it concurred 

with our recommendations and discussed its plans for carrying them out. 

Bankruptcy is a court procedure designed to help consumers and 

businesses eliminate debts they cannot pay or repay them with the court’s 

protection.3

 The filing of a bankruptcy petition in most cases operates as 

Background 

 3

 Because businesses are not subject to the credit counseling or debtor education 

provisions of the Bankruptcy Act, the scope of this report is limited to personal 

bankruptcies. 

Page 5 GAO-07-203 Bankruptcy Credit Counseling
an “automatic stay” that essentially prohibits most creditors from taking 

any action to attempt to collect a debt pending the resolution of the 

bankruptcy proceeding. Consumers usually file for bankruptcy under one 

of two chapters of the Bankruptcy Code. Under Chapter 7, the debtor’s 

eligible assets are liquidated (reduced to cash) and distributed to creditors 

in accordance with the procedures mandated by the court. At the end of

the process, the debtor’s eligible debts are discharged, which means that 

creditors may take no further action against the individual to collect the 

debt. Under Chapter 13, debtors file a repayment plan with the court 

agreeing to pay their debts over time, usually 3 to 5 years. In these cases, 

the debtor’s discharge occurs upon completion of all payments under the 

plan. Personal bankruptcy is designed to give debtors a “fresh start” but is 

often considered a last resort, in large part because of the adverse effect it

has on an individual’s credit record. Most debtors who file for bankruptcy 

use an attorney, but some debtors represent themselves without the aid of 

an attorney and are referred to as pro se debtors. 

Federal courts have jurisdiction over bankruptcy cases and petitions can 

be filed in any one of the nation’s 94 judicial districts.4

 The Trustee 

Program, a component of the Department of Justice, is responsible for 

overseeing the administration of most bankruptcy cases. The program 

consists of the Executive Office for U.S. Trustees, which provides general 

policy and legal guidance, oversees operations, and handles administrative

functions, as well as 95 field offices and 21 United States Trustees—

federal officials charged, among other things, with supervising the 

administration of federal bankruptcy cases. The Trustee Program also 

oversees private “panel trustees” and “standing trustees” who administer, 

respectively, individual Chapter 7 and Chapter 13 bankruptcy cases. 

Bankruptcy cases in Alabama and North Carolina are not under the 

jurisdiction of the Trustee Program and are administered instead by 

bankruptcy administrators in the judicial districts in those states. (See 

app. II for more information on Alabama and North Carolina.) 

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 

was signed into law on April 20, 2005, and most of its provisions became 

effective on October 17, 2005. The act made substantial changes to the 

 4

 There are 90 bankruptcy courts among the 94 judicial districts. The Eastern and Western 

Arkansas judicial districts are served by a single bankruptcy court and bankruptcy cases in 

the Guam, Virgin Islands, and Northern Marianas judicial districts are filed in district court. 

Page 6 GAO-07-203 Bankruptcy Credit Counseling
Bankruptcy Code, including the addition of new credit counseling and 

debtor education requirements.5

• Credit Counseling. To be a “debtor” (that is, eligible to file for 

bankruptcy), an individual, except in limited circumstances, must receive 

from an approved provider, within 180 days preceding the date of filing a 

bankruptcy petition, (1) a briefing outlining the opportunities available for 

credit counseling and (2) assistance with performing a budget analysis. 

Individuals may satisfy the counseling requirement post-petition if the 

individual certifies the existence of exigent circumstances that merit a 

waiver.6

• Debtor Education. Prior to discharge of debts, Chapter 7 or Chapter 13 

debtors must complete a personal financial management instructional 

course from an approved provider. 

The Bankruptcy Act has designated the Trustee Program as responsible 

for the implementation of these requirements, including the development 

of rules and guidance and the certification of approved credit counseling 

and debtor education entities. Upon completing prefiling counseling or 

predischarge education, consumers get a certificate from the provider that 

is submitted to the bankruptcy court as evidence of having fulfilled the 

requirement. 

The credit counseling industry has existed for about 40 years. Credit 

counseling agencies generally work on behalf of their consumer clients, 

who are typically deeply in debt, to help them manage their existing 

financial problems and to teach them better financial management skills 

for the future. These agencies have historically been community-based 

nonprofit organizations that charge nothing or solicit modest fees from 

 5

 Neither the prefiling counseling requirement nor the predischarge debtor education 

course requirement are applicable with respect to a debtor who (i) resides in a district that

a U.S. Trustee has determined does not have adequate capacity to service individuals 

requesting counseling or (ii) is incapacitated, disabled, or on active military duty in a

military combat zone. 11 U.S.C. §§ 109(h)(2), 109(h)(4), 727(a)(11) and 1328(g)(2). 

6

 A debtor may be granted a temporary waiver to complete the counseling requirement 

after the filing of the petition if the debtor satisfies the court that (1) an exigent 

circumstance merits it, and (2) the debtor requested services from an approved provider 

but was unable to obtain them within 5 days. If the exemption is granted, the debtor has up

to 30 days after filing the petition to complete the counseling requirement. However the

court may, for cause, extend the 30-day grace period by up to an additional 15 days. 11

U.S.C. § 109(h)(3). 

Page 7 GAO-07-203 Bankruptcy Credit Counseling
clients to help defray expenses. In some cases, agencies may offer to put 

clients in repayment programs, commonly termed debt management plans, 

where consumers pay off their unsecured debts by making a single, 

consolidated payment that the agency uses to disburse funds to creditors. 

Under such plans, creditors often agree to reduce the debtor’s interest 

rates or waive certain fees and to contribute a small percentage of the 

amount received to the counseling agency to help fund its expenses. 

The FTC and others have noted that many credit counseling agencies 

operate honestly and fairly and that these agencies are professional 

operations that provide valuable services to financially distressed 

consumers. However, starting in the 1990s, consumer complaints about 

selected segments of the credit counseling industry spurred congressional 

hearings and federal and state investigations into the activities of many 

credit counseling agencies.7

 For example, over the past few years, the FTC 

has settled enforcement actions against several of these agencies for 

alleged abusive practices, including steering consumers into debt 

management plans that provided financial benefits to the agency but not to

the consumer.8

 Further, as part of its Credit Counseling Compliance 

Project, IRS has undertaken a broad examination effort of credit 

counseling organizations for compliance with the Internal Revenue Code, 

 7

 See, for example, U.S. Senate Committee on Homeland Security and Governmental 

Affairs, Permanent Subcommittee on Investigations. Profiteering in a Non-profit

Industry: Abusive Practices in Credit Counseling (Washington, D.C.: Mar. 24, 2004). 

8

 FTC v. AmeriDebt, Inc. et al., Civil Action No.: PJM 03-3317 (D. Md. 2006) available at 

http://www.ftc.gov/os/caselist0223171/0223171ameridebt.htm; FTC v. Better Budget 

Financial Services, Inc. et al., Civ. No. 04-12326 (WGY) (D. Mass 2005) available at 

http://www.ftc.gov/os/caselist/0412326/0412326.htm); FTC v. Debt Management Foundation

Services, Inc., et al., Case No.: 8:04-CIV-1674-T-17-MSS (M.D. FL. 2005) available at 

http://www.ftc.gov/os/caselist/0423029/0423029.htm); FTC v. National Consumer Council, 

Inc et al., Civ. No. SACV04-0474CJC (JWJX) (C.D. Ca. 2005) available at 

http://www.ftc.gov/os/caselist/0323185/0323185.htm. 

Page 8 GAO-07-203 Bankruptcy Credit Counseling
including the propriety of the organizations’ tax-exempt status.9, 10 Between 

January 2005 and March 2007, IRS had revoked or terminated the federal

tax-exempt status of 19 credit counseling agencies, and as of March 2007,

IRS had proposed revocations for an additional 28 agencies.11

The Bankruptcy Act requires prefiling credit counseling and debtor 

education providers to meet certain requirements designed to ensure the 

quality of their services and prevent abusive practices. The Trustee 

Program adopted application forms and an interim final rule on 

procedures for approving applicants. Few complaints have been raised 

about providers’ competence or integrity, although IRS is in the process of

examining the tax-exempt status of four providers. 

The Bankruptcy Act provided that credit counseling and debtor education

agencies meet certain minimum requirements designed to ensure that 

providers are adequately qualified and to prevent abusive practices. With 

regard to credit counseling, the Trustee Program may approve only 

entities that, among other things 

The Trustee 

Program’s Process for 

Screening Providers 

Is Designed to Help

Ensure Statutory and 

Program 

Requirements Are Met 

Agencies Must Meet 

Statutory and Trustee 

Program Requirements to 

Be Approved 

 9

 Treasury Inspector General for Tax Administration, Abuses in the Tax-Exempt Credit

Counseling Industry Are Being Addressed, but Further Actions Are Needed to Ensure

Overall Industry Compliance, Reference Number: 2006-10-081 (Washington, D.C.:

May 2006). 

10The Pension Protection Act of 2006 amended section 501 of the Internal Revenue Code to 

establish additional requirements that credit counseling organizations must satisfy in order 

to qualify for tax-exempt status under either section 501(c)(3) or section 501(c)(4). See 

Pub. L. No. 109-280, § 1220, 120 Stat. 780, 1086-89 (2006) (to be codified at 26 U.S.C. §

501(q)). For example, an organization is prohibited from making loans (other than interestfree loans) to debtors. The additional requirements will not apply to 501(c)(3) and 

501(c)(4) organizations existing before the enactment of the Pension Protection Act until 

after August 17, 2007. An IRS official noted that the revocations of credit counseling 

agencies’ tax-exempt status were not related to changes made by the Pension Protection 

Act. 

11 When IRS issues a determination letter proposing revocation or modification of an

organization’s tax-exempt status, the organization may, within 30 days of the date of the 

letter, appeal to the Office of the Regional Director of Appeals. If no appeal is filed, the

taxpayer is sent a letter giving the taxpayer 90 days to file a petition in U.S. Tax Court, U.S. 

Claims Court, or the U.S. District Court for the District of Columbia. 

Page 9 GAO-07-203 Bankruptcy Credit Counseling
• are nonprofit organizations;12

• have an independent board of directors with the majority of members not 

directly or indirectly benefiting financially from the outcome of the 

counseling services; 

• charge a reasonable fee for counseling services; 

• provide full disclosure to a client on certain prescribed items; 

• provide for the safekeeping and payment of client funds, including 

auditing the trust accounts annually and bonding employees; 

• provide trained counselors with adequate experience; and 

• have adequate financial resources to provide continuing support services 

for budgeting plans over the life of any repayment plan. 

The act required the Trustee Program to undertake a thorough review of

the qualifications of a credit counseling agency before approving it to 

provide prefiling counseling services. Providers are initially approved for a 

probationary period not to exceed 6 months; at the conclusion of this 

period, they must reapply and the Trustee Program can approve them for 

an additional 1-year period. In July 2006, the Trustee Program adopted an 

interim final rule that set forth application procedures designed to ensure 

that only organizations that met the minimum qualification standards set 

forth in the Bankruptcy Act would be approved to provide services.13 The 

rule established criteria by which the Trustee Program will evaluate 

whether applicants have satisfied the statutory standards. For example, 

the rule specified factors that indicate whether an applicant will be 

 12 Nonprofit status is a state law concept. The Bankruptcy Act does not require that a credit 

counseling agency be qualified as a 501(c)(3) tax-exempt organization in order to be an

approved provider. However, because most federal tax-exempt organizations are nonprofit 

organizations, an organization’s federal tax-exempt status is one factor considered by the

Trustee Program in determining an agency’s nonprofit status for purposes of being an

approved provider. 

13 Application Procedures and Criteria for Approval of Nonprofit Budget and Credit 

Counseling Agencies and Approval of Providers of a Personal Financial Management 

Instructional Course by United States Trustees, 71 Fed. Reg. 38076 (2006) (interim final 

rule). 

Page 10 GAO-07-203 Bankruptcy Credit Counseling
providing counselors with adequate training and experience.

14 The rule 

also established procedures permitting the Trustee Program to remove 

agencies from the approved list, including an administrative review 

process before removal.15

As with credit counseling providers, the Bankruptcy Act also established 

minimum qualification standards for debtor education providers. For 

example, the act stated that these entities must provide personnel with 

adequate experience and training and use appropriate learning materials 

and teaching methodologies. The act also required that the provider have 

adequate facilities in reasonably convenient locations or, alternatively, 

provide instruction by telephone or through the Internet. Debtor education 

providers also must keep records to permit evaluation of a course’s 

effectiveness. The act does not require debtor education providers to be 

nonprofit entities. The Trustee Program’s interim final rule set forth 

application procedures and specified the certification standards for an 

agency’s instructors, established course procedures and recordkeeping

requirements, and identified the topics that the courses must include.16

The Trustee Program established the Credit Counseling and Debtor 

Education Unit in June 2005 to implement the relevant provisions of the 

Bankruptcy Act, which went into effect in October 2005. Because the 

Trustee Program had no prior experience or expertise in this area, the unit 

sought input from a wide variety of stakeholders, including state and 

federal agencies, credit counseling representatives, consumer advocates, 

and academics. In June 2005, the unit developed application forms and 

procedures and a basic process for approving providers.17 A wide range of 

The Trustee Program 

Developed an Approval 

Process Designed to Help 

Ensure Compliance with 

Statutory and Program 

Requirements 

 14 Section 106(e) of the Bankruptcy Act amended the bankruptcy code to require that 

prefiling credit counseling agencies must provide counselors with adequate training and 

experience in providing credit counseling. 11 U.S.C. §111(c)(2)(F). The interim final rule 

specifies that a counselor will be deemed to have “adequate training and experience” if the 

counselor is accredited or certified by a recognized independent organization, or has 

successfully completed a course of study acceptable to the Trustee Program and has 

worked a minimum of 6 months in a related area. 71 Fed. Reg. at 38078-79 (to be codified at 

28 C.F.R. § 58.15(f)(2)). 

15 71 Fed. Reg. at 38081 (to be codified at 28 C.F.R. § 58.17). 

16 71 Fed. Reg. at 38082 – 84 (to be codified at 28 C.F.R. § 58.25). 

17 OMB No. 1105-0084 (Exp. 12/31/2005), Application for Approval as a Nonprofit Budget

and Credit Counseling Agency, and OMB No. 1105-0085 (Exp. 12/31/2005), Application for

Approval as a Provider of a Personal Financial Management Instruction Course. 

Page 11 GAO-07-203 Bankruptcy Credit Counseling
industry participants told us that the Trustee Program had generally been

successful in setting up an infrastructure, establishing guidance and an 

application process, and approving providers within a very limited time 

frame. 

Credit counseling agencies applying to become approved providers—or 

reapplying to maintain their status as providers—must provide the Trustee 

Program with a variety of information used to evaluate the agencies’ 

qualifications. Among the information that applicants are required to 

disclose is 

• names and other data on current and former officers, directors, and 

trustees, including whether any have been convicted of certain crimes; 

• data on the agency, including how long it has been in business, the number 

of clients it has served, and relevant licenses, accreditations, and 

association memberships; 

• revocations of licenses or accreditations, legal actions and investigations,

and disciplinary or enforcement actions; 

• audited financial statements for the previous 2 years for applicants that 

offer debt management plans; 

• nonprofit status, including any correspondence with IRS related to section 

501(c)(3) tax-exempt status; 

• information on the nature and content of the credit counseling services 

provided, such as the average length of a session; 

• written materials, such as handouts and protocols, used in providing credit 

counseling services; and

• information on debt management plans serviced by the agency. 

To understand and assess the Trustee Program’s process for reviewing 

applications for credit counseling and debtor education, we conducted a 

detailed review of the case files of 32 applications that had been approved

Page 12 GAO-07-203 Bankruptcy Credit Counseling
and 11 applications that had been denied.18 Our case file review found that 

the Trustee Program’s process for reviewing applicants was generally 

systematic and thorough and designed to ensure that the applicants 

approved by the program met the qualification standards set forth in the 

Bankruptcy Act. In reviewing applications, analysts in the Counseling and 

Debtor Education Unit used a checklist to ensure that each applicant 

satisfied the statutory and application requirements and had provided 

documented evidence to show sufficient experience, qualifications, and 

proficiency. In many cases, applicants had to provide additional 

information. The Trustee Program also required some applicants to make 

modifications to their programs or processes before approving the 

application. For example, in several cases we reviewed, applicants were 

required to add additional material to the disclosure statements provided 

to clients. In another case, an Internet-based counseling provider was 

required to ensure that its counseling sessions added opportunities for 

direct interaction between the debtor and a counselor. 

The Trustee Program’s review process also includes measures to evaluate 

the applicants’ character and standing in the credit counseling industry. 

For example, Trustee Program officials told us that they consult publicly

available information, such as the Web site of the Better Business Bureau, 

and conduct an Internet search on applicants for information on their 

character and corroboration of information submitted. In addition, higherrisk applicants are evaluated more rigorously. For instance, agencies that 

enter a high proportion of clients into debt management plans may be 

asked to provide additional information on the number and nature of these 

plans. As of October 2006, the Trustee Program had rejected 96 

applications to provide credit counseling or debtor education services. In 

most of the cases we reviewed where the applicant was rejected, it had not 

provided sufficient documentation to demonstrate its nonprofit status, the 

existence of an independent board of directors, or its ability to perform 

adequate counseling. In addition, as of October 2006, 123 applications 

were withdrawn before being approved or rejected. Thus, according to the 

Trustee Program, out of 680 original applications, 64 percent had been

approved by the Trustee Program, 32 percent had been either rejected or 

withdrawn, and 4 percent were still in the process of being reviewed. 

 18 Of the 32 approved applications we reviewed, 15 were for credit counseling and 17 were

for debtor education, and they represented approximately 77 percent and 67 percent,

respectively, of the certificates issued between January 9, 2006, and October 17, 2006. Of

the 11 denied applications we reviewed, 6 were for credit counseling and 5 were for debtor

education. 

Page 13 GAO-07-203 Bankruptcy Credit Counseling
During the period between July 2005 and January 2007, approval of credit 

counseling and debtor education applications took an average of about 7 

weeks from the time they were submitted, according to information 

provided by the Trustee Program. In some cases, the approval of an 

application can be lengthy—38 weeks in one instance—in part because 

applicants often are asked to provide additional information. Some 

providers we spoke with said they believed that the review process could 

have been more streamlined—for example, one provider told us it was 

asked to provide the same information twice. A Trustee Program official 

noted that the credit counseling and debtor education requirement was 

still relatively new and the program is continuing its efforts to streamline 

and improve the application process. 

Trustee Program officials told us they are currently developing procedures 

for conducting audits of selected providers that have been approved for 

credit counseling or debtor education. These audits, known as Quality 

Service Reviews, are expected to include on-site inspections that will 

examine, among other things, the quality of providers’ services and 

compliance with statutory and program requirements. 

As of October 2006, the Trustee Program had approved 153 credit 

counseling providers. As required by statute, all of the credit counseling 

providers were nonprofit organizations, and about 94 percent of them had 

tax-exempt status under section 501(c)(3) of the Internal Revenue Code. 

While some of the approved agencies were relatively new organizations, 

about 90 percent had more than 5 years of experience conducting credit 

counseling. The three largest credit counseling providers—Consumer 

Credit Counseling Services of Greater Atlanta, GreenPath Debt Solutions, 

and Money Management International—represented more than half of all 

prefiling credit counseling certificates issued nationwide between January 

and October 2006. Many of the approved counseling agencies were 

members of the National Foundation for Credit Counseling, which 

industry participants told us is regarded as having high membership 

Few Complaints Raised 

about Providers’ 

Competence or Integrity,

although IRS Is Examining 

the Tax-Exempt Status of 

Four Providers 

Page 14 GAO-07-203 Bankruptcy Credit Counseling
standards. In addition, many of these providers were accredited by the 

Council on Accreditation.19

The Trustee Program had also approved 268 debtor education providers as 

of October 2006. Many of these providers also provided credit counseling 

services and the largest three provided almost half of all debtor education 

sessions nationwide. As of March 2006, about one-third of the debtor 

education providers had tax-exempt status under section 501(c)(3) of the 

Internal Revenue Code. Several Chapter 13 trustees—individuals 

appointed by United States trustees to administer bankruptcy cases—were 

approved to provide debtor education, as were some educational 

institutions, such as community colleges. 

As noted earlier, prior to the implementation of the Bankruptcy Act, 

concerns had been raised that debtors required to receive prefiling credit

counseling could be exposed to unfair and deceptive practices by 

unscrupulous agencies. However, the great majority of representatives of

consumer advocacy groups, federal agencies, industry participants, and 

other stakeholders we spoke with believed that the credit counseling 

agencies approved by the Trustee Program have been reputable. In 

addition, no federal or state law enforcement officials we spoke with 

identified any federal or state enforcement actions related to consumer 

protection issues against any providers subsequent to their approval. 20

Between October 2005 and October 2006, the Trustee Program received 

124 complaints about credit counseling and debtor education providers 

Complaints Have Been Limited 

 19 The data related to providers’ experience and accreditation were provided by the Trustee 

Program and are as of March 2006, when there were 142 providers. The National 

Foundation for Credit Counseling includes more than 100 nonprofit member agencies,

many of which use the name “Consumer Credit Counseling Service®.” Its member agency

counselors must complete training in its Counselor Certification Program. The Council on

Accreditation is an independent, third-party, not-for-profit accrediting organization that has 

reviewed more than 1,500 social service programs to ensure compliance with bestpractices standards. 

20 Organizations that qualify for tax-exempt status under Internal Revenue Code section 

501(c)(3) are exempt from certain federal and state consumer protection laws. For 

example, 501(c)(3) corporations are not subject to the Credit Repair Organizations Act, 

which imposes restrictions on credit repair organizations aimed at protecting the public 

from unfair or deceptive advertising and business practices. See 15 U.S.C. §§ 1679 et seq. 

Generally, a credit repair organization is defined as any person who provides, for a fee, 

services for the express or implied purpose of improving a consumer’s credit record, credit 

history, or credit rating. 15 U.S.C. § 1679a(3). 

Page 15 GAO-07-203 Bankruptcy Credit Counseling
out of more than 930,000 certificates issued.21 Half of these complaints 

were made by bankruptcy attorneys, while about one-quarter were made 

by consumers and one-quarter by service providers, bankruptcy courts, 

and others. Our review of a selection of complaints found that the Trustee 

Program took action to assess and follow up on each complaint, including 

notifying the relevant provider and asking for a response to the allegation. 

Providers typically gave the Trustee Program a detailed reply and 

documentation related to the alleged complaint. For example, one 

provider offered information based on a tape recording of the counseling 

session in question. 

Our analysis found that the many of the complaints were related to 

administrative issues, such as the timely issuance of a debtor’s certificate

or the status of a provider’s license. In addition, 20 complaints alleged 

unfair or inappropriate practices by providers. These included cases 

where providers were accused of giving legal advice, discouraging 

customers from filing for bankruptcy, or failing to inform clients of the 

possibility of a fee waiver. In many cases, the provider offered evidence 

that satisfied the Trustee Program that the complaint was without merit. In 

a few cases, the provider acknowledged to the Trustee Program that the 

complaint had merit and responded accordingly—for example, refunding a 

fee to a client or implementing additional procedures to ensure staff 

compliance with relevant policies. In no case did a complaint result in the 

Trustee Program removing a provider from the approved list, according to

a program official. 

As noted earlier, IRS has put credit counseling organizations under 

additional scrutiny in recent years. As part of its Credit Counseling 

Compliance Project, which began in October 2003, the agency began 

examinations of 63 credit counseling agencies, which at the time 

represented more than half of the industry’s revenue. The examinations 

focused on whether the agencies were charitable organizations meeting 

the requirements for tax exemption under section 501(c)(3) of the Internal 

IRS Is Examining Four 

Providers Approved by the 

Trustee Program 

 21 According to Trustee Program data, 939,193 credit counseling and debtor education 

certificates were issued between January 9, 2006, and October 17, 2006. The program does 

not have data on the number of certificates issued between October 17, 2005, when the

counseling and education requirements went into effect, and January 9, 2006. 

Page 16 GAO-07-203 Bankruptcy Credit Counseling
Revenue Code.22 As of March 2007, IRS had completed examinations of 47 

credit counseling agencies and in all cases the completed examinations 

resulted in either revocation, proposed revocation, or other termination of 

tax-exempt status. According to a May 15, 2006, IRS press release, the 

revocations occurred because these organizations did not provide the level 

of public benefit required to qualify for tax exemption. The agency stated

that many of these agencies served primarily to get clients into debt 

management plans, offered little or no counseling or education, and 

appeared to be motivated mostly by profit. In many cases, IRS stated, 

these agencies also served the private interests of related for-profit 

businesses, officers, and directors. 

No credit counseling provider approved by the Trustee Program had had 

its federal 501(c)(3) tax-exempt status revoked as of March 2007, 

according to publicly available documents we reviewed. However, IRS 

officials told us that four of the credit counseling agencies still under 

examination were agencies approved by the Trustee Program. A Trustee 

Program official told us that it was aware of these examinations at the 

time that it approved these applicants, but had determined that the four 

agencies met the statutory and program requirements despite the IRS 

scrutiny.23

The Trustee Program can receive information about a provider’s tax status 

through several mechanisms. As part of its process of reviewing 

applications and reapplications, a Trustee Program official told us that the

program consults publicly available information from IRS or the applicable 

state to confirm the applicant’s nonprofit status. As noted earlier, the 

program’s application forms also require that new applicants—as well as 

current providers seeking their annual reapproval—disclose any audit or 

investigation by IRS or other federal or state agency. In addition, the 

interim final rule requires that providers, once approved, promptly notify 

 22To qualify for exemption from federal income tax under section 501(c)(3), an organization 

must be organized and operated exclusively for one or more exempt purposes specified by 

statute, such as religious, charitable, scientific, literary, or educational purposes. On May 9,

2006, IRS issued a Chief Counsel Advice Memorandum (CCA 200620001) that provided a 

legal framework to determine whether a credit counseling organization that offers 

counseling and debt management plans to the general public operates in furtherance of 

educational purposes consistent with section 501(c)(3).

23 Because these four agencies were under active examination at the time of our review, 

IRS and the Trustee Program did not provide us with the identities of these four providers

or information on the status of their examinations. 

Page 17 GAO-07-203 Bankruptcy Credit Counseling
the Trustee Program of any circumstances that would materially change a 

response to any section of the application, which, according to a Trustee 

Program official, would include the initiation of an IRS investigation.24 The 

interim final rule also requires that providers notify the program 

immediately if IRS cancels or terminates their tax-exempt status.25

Applicants and providers are required to submit, upon request, a written 

waiver authorizing the Trustee Program to obtain confidential information 

about the agency from IRS.26 Program officials told us they have used such

waivers in several cases to get information on whether a provider is under 

examination by IRS and the status of the examination process. The waiver

also gives the program access to any proposed or final revocation letter 

from IRS to a provider. 

A Trustee Program official told us that when the program learns that an 

applicant is under examination by IRS, the program obtains and reviews 

correspondence between the applicant and IRS in order to understand the 

basis for the examination. For example, the proposed revocation letter 

includes the reasons why IRS seeks to revoke the agency’s tax-exempt 

status. In addition, the Trustee Program official said that applications of 

agencies under IRS examination receive additional scrutiny related to their 

use of debt management plans and potential conflicts of interest. As noted 

earlier, a Trustee Program official told us the program had approved the 

four applicants under IRS examination because after careful review it was 

determined that the applicants met statutory and program requirements. 

The official also noted that IRS may determine that a credit counseling 

agency is not tax exempt under section 501(c)(3) because it does not have 

an exclusively charitable or educational purpose, but such a finding would 

not necessarily preclude the applicant from meeting the statutory or 

program requirements for becoming an approved provider. Although the 

statute requires credit counseling providers to be nonprofit organizations, 

it does not require that they be tax exempt under section 501(c)(3).27 The 

interim final rule does allow the Trustee Program to immediately remove a

 24 71 Fed. Reg. at 38081 (to be codified at 28 C.F.R. § 58.16(i)(1)). 

25 71 Fed. Reg. at 38081 (to be codified at 28 C.F.R. § 58.16(i)(4)(i)).

26 71 Fed. Reg. at 38080 (to be codified at 28 C.F.R. § 58.15(h)(3)). 

27 As noted earlier, roughly 6 percent of the credit counseling agencies approved by the

Trustee Program are not tax exempt under section 501(c)(3) of the Internal Revenue Code, 

although they are nonprofit organizations under other applicable state laws. 

Page 18 GAO-07-203 Bankruptcy Credit Counseling
credit counseling agency from the approved list if IRS revokes the 

agency’s tax-exempt status.28 A Trustee Program official told us that this 

provision was intended to protect consumers in cases where IRS’s 

revocation is based on conduct that raises questions about the integrity of 

the provider. A program official told us that should IRS revoke an agency’s 

tax-exempt status, the program would carefully review the reasons for the 

revocation and take whatever actions were appropriate. 

According to the Bankruptcy Act, the prefiling credit counseling session 

should provide clients with individualized assessments and help them 

develop a plan to respond to their financial situation. The great majority of 

counseling is conducted by telephone or via the Internet rather than in 

person. We did not find evidence that counselors were providing biased 

information and few clients appear to be entering debt management plans. 

However, a wide range of observers questioned the value of the prefiling 

credit counseling requirement. It was intended to help consumers make 

informed choices about their options, but anecdotal evidence suggests 

that by the time most consumers receive the counseling, their financial 

problems are dire and they have few viable alternatives to bankruptcy. The

Trustee Program does not track and monitor the outcomes of counseling 

sessions because it is not required to by statute, but such data would be 

useful in determining whether the counseling requirement is meeting its 

intended goal. Finally, the predischarge debtor education requirement—a 

general financial literacy course covering budgeting, money management, 

credit, and consumer protection—is believed by most observers we spoke 

with to be beneficial. 

The Bankruptcy Act describes the required prefiling credit counseling as 

“an individual or group briefing (including a briefing conducted by 

telephone or on the Internet) that outline[s] the opportunities for available 

credit counseling and assist[s] such individual in performing a related 

budget analysis.”29 The act requires that this session include an analysis of

a client’s current financial condition and the factors that caused this 

Counseling and 

Education Sessions 

Meet Statutory and 

Program 

Requirements, but a 

Wide Range of 

Observers Question 

the Value of the 

Counseling 

Requirement 

Credit Counseling Sessions 

Are Designed to Provide 

Debtors with 

Individualized 

Assessments 

 28 71 Fed. Reg. at 38081 (to be codified at 28 C.F.R. § 58.17(f)(8)).

29 According to a Trustee Program official, the statutory language requiring a “briefing. . . 

that outline[s] opportunities for available credit counseling” has been interpreted by the

Trustee Program and providers involved to mean a credit counseling session. 11 U.S.C. § 

109(h)(1). 

Page 19 GAO-07-203 Bankruptcy Credit Counseling
condition and help develop a plan to respond to the client’s problems that 

would not involve incurring additional debt. The Trustee Program’s 

interim final rule indicated that counseling sessions should average 60 to 

90 minutes in length and prohibited credit counselors from providing 

debtors with legal advice, unless otherwise authorized by law.30 The 

Trustee Program has not published additional formal guidance or 

instruction about the nature or content of the counseling session. Trustee 

Program officials told us that it was widely understood that the content of 

the prefiling counseling session would closely resemble the traditional 

sessions that reputable credit counseling agencies have provided for many 

years. 

Our review of the Trustee Program’s case files and counseling materials of 

15 credit counseling providers—representing more than two-thirds of 

certificates issued—showed that the content of the credit counseling 

sessions, as described in the written materials, was in accordance with the 

requirements of the Bankruptcy Act. In general, the different providers 

had similar curricula and materials, although some providers covered 

certain topics more thoroughly than others. For example, some providers 

included more detailed discussions of topics such as modifying spending 

habits, avoiding identity theft, or negotiating with creditors. Credit 

counseling sessions generally began with providers collecting data on the 

client’s finances, including sources and amount of income, debt, and 

expenses. In some cases, providers received some of this information from 

the client in advance via the Internet or from the client’s credit report. 

Individual counselors then typically analyzed the data with a software 

program and provided the client with a personalized budget. They 

discussed the client’s financial goals and potential opportunities for 

reducing spending and paying off debt. Counselors then described the 

client’s options—for example, developing a budget, entering into a debt

management plan, or filing a Chapter 7 or Chapter 13 bankruptcy. 

Although counselors are prohibited from giving legal advice or 

recommending whether or not clients should file for bankruptcy, some 

providers describe the advantages and disadvantages of each alternative.

When the session is over, the counselor issues a certificate verifying that 

the client has completed the prefiling credit counseling requirement. 

 30 See 71 Fed. Reg. at 38079 (2006) (to be codified at 28 C.F.R. § 58.15 (f)). 

Page 20 GAO-07-203 Bankruptcy Credit Counseling
Although most providers offer clients the option of conducting credit 

counseling sessions in person, available data indicate the great majority of 

debtors fulfill their prefiling requirements by telephone or via the Internet. 

Trustee Program data collected on certificates issued between July 11 and 

October 17, 2006, indicated that 45 percent of all prefiling counseling 

sessions were conducted by telephone, 43 percent were conducted via the 

Internet, and 13 percent were conducted in person.31 Similarly, a survey by

the National Foundation for Credit Counseling of its member agencies that 

conduct prefiling counseling found that between October 17, 2005, and 

August 31, 2006, 61 percent of their sessions were conducted by telephone, 

24 percent via the Internet, and 15 percent in person. 

Academic researchers, counseling providers, and other experts we spoke 

with said that although in-person counseling may have advantages, 

telephone counseling can be an effective method of delivery. While some 

providers noted that counseling conducted face-to-face can be beneficial 

when addressing more complex financial situations, other providers and 

industry participants noted that telephone counseling may allow clients 

more convenience and flexibility and may be easier for people with 

mobility problems, such as the elderly. A recent study by Georgetown 

University’s Credit Research Center found no significant difference in the 

outcomes of credit counseling sessions conducted by telephone or in 

person.32 Specifically, the study found that clients receiving in-person and 

telephone counseling had similar risks of bankruptcy or credit problems 

2 years later. Our review of materials used to facilitate credit counseling 

sessions indicated that they generally had the same content and structure 

regardless of whether they were delivered in person, by phone, or via the 

Internet. 

To receive prefiling credit counseling via the Internet, a client generally

logs on to the provider’s Web site and inputs the same data on his or her 

finances that would be provided during a telephone or in-person session. 

On the basis of these data, the client is typically provided information and 

a financial analysis, including a description of the available alternatives. 

Trustee Program officials told us all approved Internet-based credit 

Most Credit Counseling Is 

Conducted by Telephone 

or Internet 

 31 Percentage does not add up to 100 due to rounding. 

32M. Staten and J. Barron, Evaluating the Effectiveness of Credit Counseling. Phase One: 

The Impact of Delivery Channels for Credit Counseling Services (May 31, 2006). The

study reviewed traditional credit counseling rather than counseling provided to satisfy the 

requirements of the Bankruptcy Act. 

Page 21 GAO-07-203 Bankruptcy Credit Counseling
counseling sessions were required to include a separate component in 

which the client communicated individually with a counselor. Providers 

told us that after completing the Internet portion of the counseling session, 

the client could speak with a counselor by telephone or, in some cases, via 

Web chat. During these one-on-one communications, which one provider 

told us typically last 10 to 20 minutes, counselors reviewed the budget

analysis with the client and answered any questions. The Trustee Program 

also requires providers to have procedures to effectively verify their 

clients’ identity. We did not identify any significant research on the 

effectiveness of credit counseling facilitated via the Internet. The Trustee 

Program told us that it has contracted with the RAND Corporation to 

review the comparative effectiveness of credit counseling delivered via 

telephone, Internet, and in person. A report from RAND is expected to be 

issued by July 2007. 

The Bankruptcy Act includes provisions designed to help ensure that 

credit counseling sessions provide objective information and present the 

client with alternatives in a neutral manner. For example, the act requires

that counseling providers be nonprofit entities with independent boards of

directors and prohibits counselors from receiving commissions or bonuses 

based on the outcomes of the counseling sessions. Despite these 

provisions, some consumer advocacy groups, policymakers, and others 

expressed concerns that credit counseling provided under the Bankruptcy 

Act might sometimes be biased and not in the clients’ best interests. 

Specifically, concerns existed that providers might inappropriately 

discourage clients from filing for bankruptcy and instead encourage them 

to enter into debt management plans that benefited the agency but not the 

debtor. 

However, available evidence indicates that only a very small number of 

clients receiving prefiling credit counseling have entered into any debt 

management plan. Counseling providers and representatives of 

bankruptcy attorneys we spoke with generally estimated that fewer than 2 

percent of prefiling credit counseling clients entered debt management 

plans. Further, a survey by the National Foundation for Credit Counseling 

of its member agencies indicated that about 3 percent of clients who 

signed up for prefiling counseling from October 2005 through August 2006 

enrolled in a debt management plan. In general, representatives of 

consumer groups, panel trustees, and others told us that they had not 

observed cases in which clients receiving prefiling credit counseling had 

been inappropriately encouraged to enter debt management plans or avoid 

filing for bankruptcy. As of October 2006, the Trustee Program had 

Available Evidence 

Indicates That Prefiling 

Credit Counseling Results 

in Few Debt Management 

Plans 

Page 22 GAO-07-203 Bankruptcy Credit Counseling
received five formal complaints (out of more than 650,000 credit 

counseling certificates issued) alleging that providers made harmful or 

inappropriate recommendations. Our review of the documentation 

associated with these five complaints indicated that in each case the 

provider gave the Trustee Program a comprehensive response. In each of 

these five cases, the program was satisfied that either the complaint 

lacked merit or the provider had taken appropriate steps to remediate the 

problem. 

The Conference Report accompanying the Bankruptcy Act indicated that 

the purpose of the credit counseling provisions was to ensure that 

consumers could “make an informed choice about bankruptcy, its 

alternatives, and consequences.” 33 The report further noted that the 

counseling was intended to give consumers in financial distress “an 

opportunity to learn about the consequences of bankruptcy—such as the 

potentially devastating effect it can have on their credit rating” before they

decided to file for bankruptcy relief.

34

However, it is unclear whether the credit counseling requirement is 

achieving its intended purpose. While quality credit counseling can, in 

general, be beneficial, a wide range of observers we spoke with—including 

representatives of federal agencies, bankruptcy attorneys, and panel 

trustees; consumer advocates; and several counseling providers—told us 

that the timing of the counseling conducted to fulfill the requirement of 

the Bankruptcy Act could mitigate its value. The federal Financial Literacy 

and Education Commission noted in its national strategy that the use of 

reputable credit counseling could have a significant positive impact, 

making borrowers more creditworthy and decreasing their debt. But the 

strategy also recommended that consumers seek credit counseling 

services early, when financial problems start, to avoid potential 

bankruptcy.35 In practice, however, by the time individuals obtain prefiling 

credit counseling, they usually have already consulted with a bankruptcy 

attorney and have serious financial problems, such as imminent 

foreclosure of their homes. As such, anecdotal evidence indicates that the

Many Question the Value 

of the Credit Counseling 

Requirement, but Data on 

Outcomes Are Limited 

 33 H.R. Conf. Rep. No. 109-31, Part I, at p. 2 (2005). 

34 H.R. Conf. Rep. No. 109-31, Part I, at p. 18 (2005). 

35 Financial Literacy and Education Commission, Taking Ownership of the Future: The 

National Strategy for Financial Literacy (Washington, D.C.: April 2006), pp. 31, 32, and 

38. 

Page 23 GAO-07-203 Bankruptcy Credit Counseling
great majority of clients receiving prefiling counseling have few viable 

alternatives to bankruptcy.36 The Bankruptcy Act’s credit counseling 

requirement therefore may not be serving its purpose of helping 

consumers make informed choices about whether or not to file for 

bankruptcy. Providers and others told us that many clients perceived the 

counseling session as an administrative obstacle rather than a useful 

exercise. 

Questions about the value of the prefiling requirement stem from a 

widespread belief among observers that nearly all of the consumers that 

receive the credit counseling subsequently file for bankruptcy. Yet the 

evidence for this is largely anecdotal, as comprehensive data do not 

currently exist on the outcomes of those consumers who receive prefiling 

credit counseling. Neither the Trustee Program, credit counseling 

providers, or any other party currently track how many consumers who 

receive credit counseling subsequently file for bankruptcy within the 180 

days during which the certificates may be used. Similarly, little is known 

about the alternatives chosen by those consumers who do not file for 

bankruptcy or how the credit counseling affects their decisions.37

During roughly the first half of 2006, some 381,005 counseling certificates 

were issued and 263,408 bankruptcy petitions filed.38 However, this 

information on its own does not provide a reliable estimate of how many 

consumers who received counseling subsequently filed for bankruptcy, for 

several reasons. First, in cases that involve a husband and wife filing a 

joint bankruptcy petition, each must obtain counseling and be issued a 

 36 The number of bankruptcy filings increased substantially just prior to the implementation 

of the Bankruptcy Act because many consumers believed it would be more difficult to 

receive bankruptcy protection once the act went into effect, according to organizations 

representing bankruptcy attorneys and other observers we spoke with. Debtors filing for 

bankruptcy shortly after the implementation of the act may therefore not be representative 

of future debtors.

37 As of January 2007, providers must submit data semiannually to the Trustee Program on

the number of their prefiling credit counseling clients who enter into debt management 

plans. In addition, the Trustee Program’s Quality Service Reviews will examine information 

on the outcomes of counseling sessions at selected providers. However, the information 

these sources will provide is limited, in large part because providers do not track whether 

their clients subsequently filed for bankruptcy. 

38 Data on the number of certificates issued were provided by the Trustee Program and 

cover January 9 through July 3, 2006. Data on the number of bankruptcy petitions filed 

were provided by the Administrative Office of the U.S. Courts and cover January 1 through 

June 30, 2006. 

Page 24 GAO-07-203 Bankruptcy Credit Counseling
certificate. Second, a time lag may exist between the time the certificate is 

issued and the time of the filing, because the certificate is good for 180 

days. For this reason, reported bankruptcy filings during a given time 

frame will not reflect all the bankruptcies that will be filed using the 

certificates issued in that time frame. Third, certificates are sometimes 

cancelled and reissued for administrative reasons (such as the misspelling 

of the client’s name), so that one person is issued two certificates. Finally, 

occasionally a client may receive prefiling credit counseling but not be 

issued a certificate—for example, if the client decides not to file for 

bankruptcy.

When a provider completes a prefiling credit counseling session, it uses a 

Web-based system operated by the Trustee Program to issue the client a 

certificate, which includes a unique certificate number. While the Trustee 

Program maintains a list of certificate numbers, for privacy purposes it 

does not receive any information, including names, about the clients who 

were issued certificates. A bankruptcy petitioner must provide to the court 

a certificate to document having satisfied the prefiling counseling 

requirement. However, the courts do not track or report the unique 

numbers assigned to these certificates. As a result, it is not possible to link 

individuals who have received prefiling credit counseling with individuals

who have filed for bankruptcy. 

A Trustee Program official told us that the program had not taken steps to

track and monitor the outcomes of credit counseling sessions because this 

effort was not part of its statutory responsibilities. The Bankruptcy Act, he 

noted, requires the Trustee Program to test and evaluate the effectiveness 

of a pilot debtor education curriculum, but contains no analogous 

provisions for monitoring or evaluating credit counseling.39 As we have 

reported in the past, meaningful data on program outcomes and costs are 

 39 Section 105 of the Bankruptcy Act requires the Trustee Program to develop a debtor 

education course that can be used to satisfy the debtor education requirement. The act 

required the program to pilot the curriculum and materials in six judicial districts for 18 

months. The Trustee Program is required to test the effectiveness of the course along with 

a sample of existing consumer education programs and report its findings to Congress.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, §105, 119 Stat. 23, 36-

37. 

Page 25 GAO-07-203 Bankruptcy Credit Counseling
essential for appropriate oversight and decision making.40 Without reliable 

data on the outcomes of the prefiling credit counseling sessions, 

policymakers and program managers lack information that would allow 

them to determine how well the statutory requirement is truly serving to 

inform consumers about their options. 

The Bankruptcy Act describes the debtor education requirement as an 

“instructional course concerning personal financial management” that 

could be offered in person, by telephone, or via the Internet.41 The Trustee 

Program’s interim final rule specified that the course should average 2 

hours in length and include written information and instruction on four 

major topics: 

Debtor Education Sessions 

Are Designed to Offer 

Financial Management 

Skills 

• budget development, which includes, calculating income, identifying and

classifying monthly expenses, and setting short-term and long-term goals; 

• money management, which includes keeping adequate financial records, 

developing decision-making skills to distinguish between wants and needs, 

comparison shopping, maintaining appropriate levels of insurance, and 

saving for emergencies;

• wise use of credit, which includes understanding the types, sources, and

costs of credit and loans; identifying debt warning signs; using credit 

appropriately and identifying alternatives to credit; and checking a credit 

rating; 

• consumer information, including public and nonprofit resources for 

consumer assistance and applicable consumer protection laws and 

regulations.42

In reviewing the debtor education curricula, teaching guides, and other 

materials of 17 debtor education providers, we found that the content 

included the topics and elements that the Trustee Program required. In 

 40 For example, see GAO, Program Evaluation: OMB’s PART Reviews Increased Agencies’

Attention to Improving Evidence of Program Results, GAO-06-67 (Washington, D.C.: Oct. 

28, 2005); Results-Oriented Government: GPRA Has Established a Solid Foundation for 

Achieving Greater Results, GAO-04-38 (Washington, D.C.: Mar. 10, 2004); and Managing 

for Results: Using GPRA to Assist Congressional and Executive Branch Decisionmaking, 

GAO/T-GGD-97-43 (Washington, D.C.: Feb. 12, 1997). 

41 See 11 U.S.C. § 111(d)(1)(C). 

42 71 Fed. Reg. at 38082 (to be codified at 28 C.F.R. § 58.25(f)). 

Page 26 GAO-07-203 Bankruptcy Credit Counseling
general, we found the curricula of different providers to be fairly similar, 

although some providers included additional details or emphasis on 

certain topics. According to a Trustee Program official, to cover the 

required topics, most of the debtor education providers used 1 of about 15 

standard curricula—for example, the National Foundation for Credit 

Counseling’s “Live a Richer Life” or the Federal Deposit Insurance 

Corporation’s “Money Smart.” 

The Bankruptcy Act required that the Trustee Program, after consulting 

with a wide range of experts in the field, also develop its own curriculum 

and training materials for debtor education. The act required the program 

to test the effectiveness of this curriculum and materials for 18 months in 

six judicial districts.43 In September 2005, the Trustee Program contracted 

with the Education Development Center, a nonprofit research firm, to 

develop the pilot curriculum and with Abt Associates, a private consulting 

firm, to evaluate it. The curriculum, entitled “Financial Education: 

Principles and Practices,” was presented by academic institutions in the 

six judicial districts selected for the pilot and was still being evaluated as 

of March 2007.44

Trustee Program data collected on certificates issued between July 11 and 

October 17, 2006, indicated that 50 percent of predischarge education 

sessions was conducted by Internet, 29 percent was conducted via 

telephone, and 21 percent was conducted in person. In-person debtor 

education courses are typically conducted in a group classroom setting, 

while telephone sessions are conducted in one-on-one or group settings. 

For Internet sessions, the client generally reads the educational material 

and takes an on-line quiz, and then may have a follow-up discussion with 

an instructor. The Trustee Program does not require that debtor education 

conducted via the Internet include individual communication with a 

counselor, but a counselor must be made available to answer any 

questions clients may have. 

 43 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, § 105, 119 Stat. 23, 

36-37. 

44 Executive Office for U.S. Trustees, U.S. Department of Justice, Financial Education: 

Principles and Practices (Washington, D.C.: March 2006). The judicial districts in which

the curriculum was tested were the Northern District of Illinois, District of New Jersey, 

Northern District of Texas, Eastern District of Virginia, Western District of Virginia, and

Eastern District of Washington. 

Page 27 GAO-07-203 Bankruptcy Credit Counseling
Most representatives of consumer groups, panel trustees, bankruptcy 

attorneys, and others we spoke with believed that the predischarge debtor

education course was likely to help improve consumers’ financial literacy. 

They noted, for example, that consumers completing bankruptcy should 

receive guidance on budgeting, avoiding future debt, and rebuilding credit. 

The National Association of Chapter 13 Trustees established a similar 

debtor education course several years before the Bankruptcy Act took 

effect. According to representatives of Chapter 13 trustees, these courses 

were particularly helpful for debtors under Chapter 13 bankruptcy 

protection, who operate under a repayment plan for up to 5 years, and 

debtors who took the course were more likely to successfully complete 

their repayment plans.45

The Bankruptcy Act requires that providers charge reasonable fees and

provide their services without regard to a client’s ability to pay. Neither 

the statute nor the Trustee Program’s interim final rule provide specific 

criteria for what constitutes a “reasonable fee” or “client’s ability to pay.” 

Available evidence indicates that credit counseling and debtor education

sessions typically cost about $50 or less, an amount that representatives of

consumer groups, legal organizations, and others we spoke with generally

believed to be reasonable. Providers varied in their policies and practices

for waiving fees. The Trustee Program has not issued rules or specific 

guidance on what constitutes a debtor’s ability to pay because it wanted to 

give providers the flexibility to respond to market conditions. However, 

formalized guidance could be beneficial because it could, among other 

things, set a minimum benchmark for reducing or waiving fees. 

Provider Fees Are 

Generally Considered 

Reasonable, Although 

Fee Waiver Policies 

Vary

 45 Chapter 13 trustees administer cases filed under Chapter 13 of the Bankruptcy Code. The

National Association of Chapter 13 Trustees is a nonprofit membership organization that 

includes Chapter 13 Trustees and staff, attorneys, judges, and other related professionals. 

Page 28 GAO-07-203 Bankruptcy Credit Counseling
The Bankruptcy Act requires that credit counseling and debtor education

providers charge reasonable fees for their services and provide these 

services without regard to the client’s ability to pay the fee.46 However, the 

statute did not specify what fees are considered “reasonable” nor what 

constitutes a client’s “ability to pay.” Before the Bankruptcy Act came into 

effect, the Trustee Program noted on its Web site that based on

information provided by the industry, it believed that credit counseling 

would generally be available for a fee ranging from free to $50. The site 

also noted that a number of variables may affect an agency’s fee structure,

including geography, types of services provided, administrative costs, and 

the presence of alternate funding sources. The Trustee Program said that 

in determining whether fees were reasonable, it would consider these 

factors as well as the fees customarily charged in the industry for similar 

services. The site did not provide information about the expected fees for

debtor education. 

In its interim final rule, adopted in July 2006, the Trustee Program did not 

provide specific guidance on what dollar amount would constitute a 

reasonable fee nor the criteria providers should use in determining a 

client’s ability to pay. A Trustee Program official told us that in addition to

the program’s publicly available guidance, it has provided informal 

feedback to providers who have inquired about the appropriateness of 

their fee structures. The Trustee Program requires that providers disclose 

their fee schedules in their applications, and as of July 2006, has also 

required providers to disclose their policies for reducing or waiving fees 

based on the client’s ability to pay.47 The official told us that the program 

reviews providers’ waiver policies during the application process to ensure 

that the policies are clear and objective, and in some cases have rejected 

applicants for inadequate fee waiver policies. The interim final rule 

specified that providers must advise clients of their fee schedules before 

services are rendered and inform them that services are available for free

or at a reduced rate based on their ability to pay. It also prohibited 

providers from charging a separate fee for issuing the counseling and 

education certificates. 

Providers Must Charge 

Reasonable Fees and 

Provide Services 

Regardless of Clients’ 

Ability to Pay 

 46 11 U.S.C. §§ 111(c)(2)(B) and 111(d)(1)(E). See also Pension Protection Act of 2006

§1220 (to be codified at 26 U.S.C. § 501(q)) (imposing requirements regarding fees charged 

by credit counseling organizations that are tax exempt under Internal Revenue Code §

501(c)(3)). 

47 71 Fed. Reg. at 38078-79 and 38082-83 (to be codified at 28 C.F.R. §§ 58.15(e) and 

58.25(j)). 

Page 29 GAO-07-203 Bankruptcy Credit Counseling
The Trustee Program requires providers to report in their applications and 

reapplications the fees that they charge, although the program does not 

track these data centrally. Trustee Program staff, providers, and trade 

association representatives told us that most providers charge around $50 

each for their credit counseling and debtor education sessions. This 

estimate was corroborated in survey data collected by the National 

Foundation for Credit Counseling from 107 providers, which reported 

charging an average fee of $47 for prefiling credit counseling and $43 for 

debtor education.48 In addition, each of the three largest providers, which 

as of October 2006 had issued about half of all certificates, told us that 

they charged exactly $50 for an individual credit counseling or debtor 

education session. Among the smaller credit counseling providers we 

spoke with, two told us that they charged $50, and the others charged $49,

$35, and $0. Among debtor education providers we spoke with, fees 

ranged between $0 and $50 per individual session. In a few cases, we 

identified smaller counseling and education providers whose fees were 

higher, such as $75 per session. Representatives of consumer groups and 

legal organizations, as well as academics and others we spoke with, 

generally said they believed that the fees charged by credit counseling and

debtor education providers had been reasonable. Some providers said that 

the fees had generally been adequate to cover their costs, but others said 

that prefiling counseling was being subsidized by their other lines of 

business. Providers noted that the requirements were still relatively new 

and that as the true cost of providing these services in the long term 

became clearer, they might consider adjusting their fees. 

Providers have varying policies for determining a client’s ability to pay the

fee. In September 2005, the National Foundation for Credit Counseling, 

after consulting with the Trustee Program, told its members that the 

program said it would be appropriate to waive counseling fees for clients 

with incomes less than 150 percent of the poverty line—the same 

eligibility threshold authorized by federal law for waiving the fees charged 

by the court for filing a bankruptcy petition.49 Some providers we 

interviewed used as their threshold a different percentage of the poverty 

While Providers’ Fees Are 

Considered Reasonable, 

Fee Waiver Policies Vary 

 48 National Foundation for Credit Counseling, Consumer Counseling and Education Under

BAPCPA: Year One Report (Silver Spring, Md.: Oct. 16, 2006). This report provided data on 

the agencies’ average revenue per session, which factored in cases where fees were 

reduced or waived. However, the foundation provided us with the underlying data from its

survey, which we used to determine the average price charged to consumers who did not

have their fees reduced or waived. 

49 See 28 U.S.C. § 1930(f). 

Page 30 GAO-07-203 Bankruptcy Credit Counseling
line or other criteria, such as whether the client received legal aid or 

disability benefits. The three largest providers all use differing criteria—

one told us it waived fees for clients at or below 150 percent of the poverty 

line, a second for clients at or below 120 percent of the poverty line, and a

third based on whether the client received free legal aid or had disability 

income. Providers we spoke with generally said that they allowed 

counselors to use their discretion to waive fees in additional 

circumstances as well. According to Trustee Program data, the three 

largest providers waived their fees 4 percent, 15 percent, and 26 percent of 

the time for credit counseling sessions, and 6 percent, 21 percent, and 34 

percent of the time for debtor education courses. A Trustee Program 

official told us that three factors were responsible for the differences in 

the proportions of clients whose fees were reported waived. First, 

providers had different policies for determining ability to pay. Second, 

some providers chose to waive fees for some clients who did not qualify 

under the provider’s formal policy. Third, providers were inconsistent in 

how they reported fee waiver data to the Trustee Program—for example, 

some providers counted as waivers cases in which clients were charged

the fee but failed to pay.

Some policymakers and consumer groups have expressed concerns that 

providers might not always clearly inform clients that fees could be 

waived for those unable to pay. Stakeholders involved in the process told 

us that there had been limited anecdotal evidence to support this concern.

In addition, out of more than 930,000 credit counseling or debtor 

education certificates issued as of October 2006, the Trustee Program had 

received only seven formal complaints about providers that had not 

waived fees or told clients about this option. Trustee Program officials 

noted that nearly all complaints related to fees and fee waivers were made 

shortly after the Bankruptcy Act went into effect and the requirements 

were new. 

As noted earlier, neither the statute nor the Trustee Program’s rulemaking 

provide criteria for what constitutes a client’s ability to pay the fee for a 

counseling or education session. Some providers told us that the lack of 

guidance left them unsure about the criteria they should use. Eight of the 

22 comments to the interim final rule submitted by providers, industry 

associations, and consumer groups requested that the Trustee Program 

provide guidance or clarification on what constitutes a client’s ability to 

pay. In some cases, the comments suggested that the program provide 

objective measures or uniform criteria. Several providers we spoke with, 

as well as trade associations, consumer groups, and creditor organizations, 

Trustee Program Has Not 

Issued Formal Guidance 

on Determining a Client’s

Ability to Pay 

Page 31 GAO-07-203 Bankruptcy Credit Counseling
also told us that additional guidance on determining ability to pay would 

be beneficial. 

Trustee Program officials told us that they are considering formalizing 

criteria, in a rulemaking, that providers should use to determine clients’ 

ability to pay but that they have not made a final decision on the issue. 

Program officials told us that they were reluctant to formalize such criteria

because they did not want to be too prescriptive and wanted to give 

providers flexibility to respond to market conditions—for example, to 

adjust fee waiver policies based on local economic conditions and costs of 

doing business. However, clearer guidance on determining a client’s ability 

to pay could have several benefits. First, it could reduce uncertainty 

among providers as to what criteria are appropriate. Second, it could 

improve transparency by clarifying the minimum standards for waiving or

reducing fees. Finally, it could help ensure that services are offered to 

clients regardless of ability to pay by providing guidelines for a minimum 

benchmark on when fees should be reduced or waived. 

Evidence showed that as of October 2006, enough prefiling credit 

counseling and predischarge debtor education providers—153 and 268,

respectively—had been approved to allow consumers to receive these 

services on a timely basis. Although in-person counseling or education is 

not easily accessible in some parts of the country, these services are 

available via telephone or Internet, and most debtors favored these 

options. Many providers offer services in several languages or provide 

translation services. Anecdotal evidence suggests that consumers who try 

to file for bankruptcy without an attorney sometimes are not aware of the 

credit counseling requirement. A survey of federal bankruptcy judges 

conducted by the Federal Judicial Center indicated that debtors who file 

for bankruptcy without fulfilling the credit counseling requirement can 

face a variety of consequences. 

Before the Bankruptcy Act went into effect, some members of Congress, 

consumer advocates, and others worried that not enough counseling 

services would be available within the required time frame for people 

filing for bankruptcy. Our review of the limited data available and 

anecdotal evidence indicated that as of October 2006 the supply of credit 

counseling and debtor education services had been adequate to meet the 

demand for these services. A wide range of participants in the bankruptcy 

process—including bankruptcy attorneys, panel trustees, a bankruptcy 

court representative, and service providers—told us that getting access to 

Supply of Providers 

Appears Sufficient 

and Actions Under 

Way Address 

Challenges Some 

Consumers May Face 

Fulfilling the 

Requirements 

Enough Counseling and 

Education Services Exist 

to Meet Demand 

Page 32 GAO-07-203 Bankruptcy Credit Counseling
these services in a timely manner had generally not been a barrier to filing 

or receiving discharge of debts. 

When the Bankruptcy Act went into effect in October 2005, the Trustee 

Program had approved 71 credit counseling and 76 debtor education 

providers. As of October 2006, this number had risen to 153 credit 

counseling and 268 debtor education providers. The three largest 

organizations provide about 56 percent of the credit counseling sessions 

and about 46 percent of the debtor education sessions. While the majority 

of providers are local organizations offering services in particular 

communities, about a dozen offer services nationwide, either through a 

network of field offices or through telephone or Internet services. Because

the great majority of debtors fulfill the credit counseling and debtor 

education requirements through sessions provided by telephone or via the 

Internet, having providers nearby is not always necessary. 

A wide range of participants we spoke with told us that consumers who 

call to schedule a credit counseling or debtor education session can 

usually be accommodated within 24 hours, and sometimes much sooner. 

Providers sometimes refer potential clients to another provider if they 

cannot see a client in a timely manner. The providers we spoke with, 

which represented the great majority of certificates issued, told us that 

they currently had adequate capacity to meet demand for their

bankruptcy-related services. At the same time, the volume of bankruptcy 

filings has been relatively low since the Bankruptcy Act became effective 

and the capacity of providers could potentially become an issue should 

bankruptcy filings substantially increase in the future. However, several

large providers told us they would be able to expand their capacity if 

needed. 

Nearly all approved credit counseling and debtor education providers offer 

their clients the option of in-person sessions. As of July 2006, consumers 

could receive prefiling credit counseling in person at more than 700 

locations and debtor education in person at more than 1,000 locations. 

Comprehensive data do not exist on the precise proportion of consumers 

living close enough to agencies providing in-person counseling or 

education to comfortably travel to such a site. However, an analysis of 

existing data suggests that in-person counseling and education sessions 

are accessible to most of those who need them—particularly in 

metropolitan areas—but are not easily accessible in certain portions of the 

country. For example, judicial districts had, on average, 8 locations where 

consumers could fulfill the credit counseling requirement and 11 where 

In-Person Counseling Is 

Not Always Available, but 

Few Seek It 

Page 33 GAO-07-203 Bankruptcy Credit Counseling
they could meet the debtor education requirement via an in-person 

session. But some large judicial districts, such as those in Alaska, North 

Dakota, and Wyoming, had 5 or fewer such locations. No in-person 

locations existed for credit counseling in the district encompassing 

Southern Illinois, nor was in-person debtor education available in the 

District of Columbia. 

Some providers we spoke with said that they had not expected that there 

would be so little demand for in-person prefiling credit counseling and 

predischarge debtor education services, pointing out that, by contrast, 

more than half of their traditional credit counseling sessions were 

conducted in person. Because of the low demand for in-person prefiling 

counseling, one large provider told us that it had reallocated some of its 

resources—for example, by closing some local offices and expanding call 

centers that provide telephone counseling. 

Among participants in the process with whom we spoke, the consensus 

was that debtors sought to conduct the counseling and education sessions 

by telephone or Internet because these were the quickest and most 

convenient methods for satisfying the statutory requirements. As noted 

earlier, by the time most debtors receive the counseling, they have already

consulted an attorney and decided to seek bankruptcy protection and see 

the counseling and education sessions largely as administrative obstacles 

to be overcome as quickly as possible. 

Although relatively few debtors appear to seek in-person services, some 

consumer advocates and others have said that debtors in all parts of the 

country should at least have the option of obtaining services in person. 

These parties have noted that while some debtors may find telephone 

counseling more convenient, others may find in-person services a more 

comfortable and effective option. The Trustee Program’s Web site includes 

information about providers that offer in-person sessions and the locations

for these sessions. 

Some potential bankruptcy filers, such as those who do not speak English,

have limited literacy skills, or are not represented by an attorney, may face

certain challenges in accessing prefiling credit counseling and 

predischarge debtor education. The Trustee Program and the courts have 

certain actions planned or under way to help address these challenges. 

As of October 2006, many credit counseling and debtor education 

providers offered their services in Spanish, and several offered services in

Steps Under Way to 

Address Challenges of 

Certain Populations in 

Accessing Services 

Non-English Speakers 

Page 34 GAO-07-203 Bankruptcy Credit Counseling
other languages. For example, two large nationwide providers can conduct 

sessions in at least 15 languages and, using a translation services 

contractor, can provide sessions in about 150 languages. Because these 

providers offer telephone counseling and have been approved to provide 

counseling and education in almost all judicial districts, their services are 

accessible to debtors nationwide. Some smaller local providers also offer 

in-person and telephone services in languages other than English—for 

example, a provider serving a region with large Chinese and Korean 

populations told us that it offered services in those languages. Providers 

that cannot offer services in a client’s primary language may refer the 

client to a provider that can. In some cases, counseling or education 

sessions are translated for the debtor by a friend or family member, 

although representatives who advocate for language access issues told us 

that this method is not fully effective. In addition, some providers offer 

written materials in Spanish but not in other foreign languages. As a result, 

debtors whose primary language is other than English or Spanish will 

receive information orally, but may not benefit from supplementary 

written materials. 

Consumer and language access advocates, as well as representatives of 

bankruptcy attorneys, told us they were concerned about the ability of 

some non-English speakers to receive counseling and education services 

in their native languages in a timely and effective manner. One advocate 

noted that translation of these sessions may not always be effective given 

the technical nature of some of the financial terms used and the sensitive 

nature of the topics under discussion. These concerns were highlighted in

a March 2006 decision in the Southern District of Florida, where a 

bankruptcy judge waived the prefiling credit counseling requirement for a 

man who said he was unable to find a provider that could offer him 

counseling in Creole.50 However, although comprehensive data do not 

exist, most providers told us that demand for sessions in languages other 

than English and Spanish has been low. For example, one large nationwide 

provider estimated that less than one-half of 1 percent of its clients require

the use of its telephone-based translation services contractor. This 

provider also told us it had not had any requests for in-person counseling 

in languages other than English or Spanish. 

 50 In re Petit-Louis, 338 B.R. 132 (Bankr.S.D.Fla. 2006) (finding that a petitioner who was 

fluent in Creole was entitled to a waiver of the prefiling counseling requirement where no 

approved provider in the judicial district in which the petitioner resided offered counseling 

services in the Creole language). 

Page 35 GAO-07-203 Bankruptcy Credit Counseling
When the Bankruptcy Act went into effect in October 2005, the Trustee 

Program’s Web site did not include any information on which foreign 

languages individual providers offered. In April 2006, the Trustee Program 

modified its Web site to include foreign languages offered by providers. 

The Trustee Program surveyed all providers in November 2006 to gather 

additional information on their available languages and translation 

services. As of January 2007, the Web site allowed users to conduct a 

search to identify providers offering services in any one of 29 languages.51

A program official told us that he expected that eventually the Web site 

will include a function that will allow consumers to search, by provider 

and location, for all languages and translation services offered. 

Apart from non-English speakers, certain other populations may have 

experienced challenges in accessing counseling and education sessions. 

For example, it may be difficult for individuals with limited literacy skills 

to understand counseling and education sessions, which often rely heavily 

on written materials. In such cases, some providers told us that during the 

session they read aloud most of the written materials. Some consumer 

advocates and representatives of bankruptcy attorneys have also 

expressed concerns about the ability of disabled, elderly, or incarcerated 

debtors to easily access credit counseling and debtor education in an 

effective and timely manner. We could not find any data on the nature of

and extent to which such difficulties exist. Most participants in the 

bankruptcy credit counseling process that we spoke with said that while 

there may be individual examples in which debtors with special needs 

faced challenges accessing needed services, it did not appear that this was 

an issue for a large number of debtors. 

Debtors filing for bankruptcy protection may use an attorney or may file 

without one (pro se). The proportion of debtors filing pro se varies across 

different judicial districts. For example, among seven bankruptcy courts 

that the Administrative Office of the U.S. Courts surveyed at our request, 

Individuals With Special Needs 

or Circumstances 

Debtors Without Attorneys 

Also Can Face Challenges 

 51 If a provider offers sessions in Spanish, this information is included in the main listing for

the provider; for 29 other languages, consumers can conduct a search via a drop-down 

menu. 

Page 36 GAO-07-203 Bankruptcy Credit Counseling
as few as 4.5 percent and as many as 24.9 percent of debtors filed pro se.52

At the initial meeting with a client, a bankruptcy attorney will typically tell

the client about the credit counseling requirement. The attorney will often 

give the client contact information for approved counseling agencies and

may provide a room with a telephone so that clients can fulfill the 

counseling requirement on the spot.

Debtors who file without the aid of an attorney can learn of the prefiling 

credit counseling requirement through other sources, such as instructional 

information located on the form of the voluntary petition that must be 

filed by the debtor, in other written materials provided by the bankruptcy 

court, or on the Web sites of the bankruptcy courts or the Trustee 

Program. Each of the 94 federal judicial districts has its own methods of 

disseminating explanatory information. When we telephoned bankruptcy 

courts in seven judicial districts to inquire about the process for filing for 

bankruptcy, staff typically directed us to the court’s Web site. A review of 

nine courts’ Web sites found that all but one highlighted the prefiling 

counseling requirement in a relatively prominent fashion, such as noting it

on their home page. In one case, the requirement was not prominently 

noted, but instead was included among a long list of public notices. 

The bankruptcy courts in all districts use a uniform set of Official 

Bankruptcy Forms that individuals must complete to file and take action 

in bankruptcy cases. In June 2006, at the suggestion of the Trustee 

Program, the Advisory Committee on Bankruptcy Rules of the Judicial 

Conference of the United States modified the main form for filing a 

bankruptcy petition to make the prefiling counseling requirement more 

clear and conspicuous. The form now requires that petitioners attach an 

additional exhibit—Individual Debtor’s Statement of Compliance With

Credit Counseling Requirement—to attest to compliance with the 

requirement or claim an exigent circumstance. 

Debtors who file for bankruptcy without fulfilling the credit counseling 

requirement can face a variety of consequences. A survey conducted by 

 52 The seven bankruptcy courts surveyed by the Administrative Office of the U.S. Courts at

our request were the Central District of California, the Northern District of California, the

District of Colorado, the District for the District of Columbia, the Northern District of 

Illinois, the Northern District of Texas, and the Western District of Washington. These 

seven courts were chosen to represent different regions of the country. Because of the 

small sample size, information from these courts provides anecdotal information but 

cannot be projected to represent all bankruptcy courts. 

Page 37 GAO-07-203 Bankruptcy Credit Counseling
the Federal Judicial Center asked U.S. bankruptcy judges what procedures 

they follow when a debtor has not produced a prefiling credit counseling 

certificate.53 When asked in the survey to select one or more, 44 percent of

judges said they had given such filers a specified period to produce the

certificate, 34 percent had issued an Order to Show Cause or otherwise set 

a hearing on the deficiency, 20 percent had taken no action, and 13 percent 

had dismissed the case. The survey also showed that 35 percent of the 

judges said they treated imminent foreclosure or eviction, by itself, as an 

exigent circumstance, while about 55 percent treated this as an exigent 

circumstance only if the debtors could satisfactorily explain why they had 

not yet received credit counseling. Another 10 percent said that imminent 

foreclosure or eviction was never an exigent circumstance. 

Before the Bankruptcy Act went into effect, some policymakers, consumer 

advocates, and others expressed concern that the credit counseling 

requirement could create hardship for some debtors by delaying their 

ability to file a bankruptcy petition and receive the automatic stay that 

prohibits creditors from continuing to seek payment. This stay can be very 

important to some debtors—for example, those facing foreclosure on their 

homes. However, we did not identify data on the extent to which failure to

receive credit counseling has created such hardships. 

Within a limited time frame, the Trustee Program established policies and 

procedures for selecting credit counseling and debtor education providers, 

and thus far relatively few concerns have been raised about the 

competence of approved providers. We found that the program’s process 

for reviewing credit counseling applicants was generally comprehensive 

and included numerous steps designed to assess applicants’ proficiency 

and reputability. The Trustee Program said it is carefully monitoring the 

circumstances of the IRS examinations of four approved providers and 

will take appropriate actions based on the outcomes of these 

examinations—which we agree is essential given that IRS’s past 

examinations have often revealed abusive practices. 

Conclusions 

 53 Federal Judicial Center, “Implementing the Bankruptcy Abuse Prevention and Consumer

Protection Act of 2005: Early Experience” (May 17, 2006). The survey was conducted by the 

Federal Judicial Center—the education and research agency for the U.S. Courts—in March 

2006 to collect information about judges’ early experiences with the credit counseling 

requirement. The survey was sent to 312 active and 29 former bankruptcy judges; 157 of

these responded to the survey. 

Page 38 GAO-07-203 Bankruptcy Credit Counseling
We also found that the value of the prefiling credit counseling requirement 

is not clear. The requirement was intended to provide consumers with 

information about bankruptcy and its alternatives so they can make 

informed decisions about their options. In practice, however, anecdotal 

evidence strongly suggests that most consumers have no realistic 

alternative to bankruptcy by the time they receive the counseling. As such, 

a wide range of stakeholders view the prefiling counseling requirement as 

an administrative obstacle rather than a useful exercise. It is therefore 

uncertain whether the requirement is achieving its key goal of helping 

consumers determine whether or not to file for bankruptcy. Better data on 

the outcomes of prefiling credit counseling would help program managers 

and policymakers determine its value. In particular, it would be useful to 

confirm whether, as many believe, nearly all consumers who receive

prefiling counseling subsequently file for bankruptcy. The Trustee 

Program does not currently collect this information because doing so is 

not part of its explicit statutory responsibilities. In addition, there is 

currently no mechanism in place to match individual counseling 

certificates with bankruptcy filings. However, appropriate data on 

outcomes are essential to understanding program benefits and costs and

to effective oversight and decision making. Data on how often counseling 

sessions result in bankruptcy filings or other outcomes would help 

determine how well the prefiling credit counseling requirement is serving 

its intended purpose. 

There is less debate about the predischarge debtor education requirement, 

which provides broad-based financial education to debtors near the end of 

the bankruptcy process. This requirement is consistent with the increased

attention being paid by Congress and executive branch agencies in recent 

years to improving Americans’ financial literacy. As we have noted in 

earlier reports, we believe that ensuring that Americans have the 

knowledge and skills to manage their money wisely is a key element in 

improving the economic health of our nation in current and future 

generations.54 Financial education efforts that seek to achieve goals such 

as reducing Americans’ debt are key to helping improve our citizens’ 

economic security and our country’s economic growth. 

 54 For example, see GAO, Financial Literacy and Education Commission: Further 

Progress Needed to Ensure an Effective National Strategy, GAO-07-100 (Washington, D.C.: 

Dec. 4, 2006) and Highlights of a GAO Forum: The Federal Government’s Role in

Improving Financial Literacy, GAO-05-93SP (Washington, D.C.: Nov. 15, 2004). 

Page 39 GAO-07-203 Bankruptcy Credit Counseling
The fees charged for credit counseling and debtor education services 

generally appear to be reasonable. However, the extent to which fees are

waived varies considerably among providers. The Trustee Program has not 

issued rules or formal guidance for what constitutes a debtor’s “ability to 

pay” because it wants to give providers flexibility to respond to market 

conditions. While we understand the program’s reluctance to be too 

prescriptive, we also believe that clearer guidance on criteria for reducing 

or waiving fees would have several benefits, including reducing 

uncertainty among providers about appropriate criteria, providing greater 

transparency on waiver policies, and ensuring compliance with minimum 

standards for waiving fees among all providers. At the same time, this 

guidance should give providers some flexibility, so as not to discourage 

those who may wish to waive fees more liberally than required. 

The supply of credit counseling and debtor education providers appears to 

be sufficient to allow consumers to access these services in a timely 

manner. While in-person services are not always available in some 

locations, this concern is somewhat mitigated by the fact that the great

majority of clients appear to prefer telephone or Internet counseling. 

Accessing services in languages other than English or Spanish has been a 

challenge for some consumers, however. The Trustee Program’s recent 

efforts to better communicate providers’ language and translation services 

represent positive actions in facilitating access by speakers of foreign 

languages. Further, the courts’ recent steps to better ensure that filers are 

aware of the prefiling counseling requirement are beneficial given the 

potential consequences of filing for bankruptcy without the required 

counseling certificate. 

We recommend that the Attorney General direct the Director of the 

Executive Office for U.S. Trustees to do the following: Recommendations 

• 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. 

• To clarify the Bankruptcy Act’s requirement that prefiling credit 

counseling and predischarge debtor education be provided regardless of a 

Page 40 GAO-07-203 Bankruptcy Credit Counseling
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. 

We provided a draft of this report to the Administrative Office of the U.S. 

Courts, Department of Justice, and IRS for comment. These agencies 

provided technical comments that we incorporated as appropriate. In 

addition, on behalf of the Department of Justice, the Executive Office for 

United States Trustees provided a written response, which is reprinted in 

appendix III. 

In its comment letter, the Trustee Program said that it concurred with our 

recommendation to develop a mechanism that would allow the program or 

other parties to track the outcomes of prefiling credit counseling. The 

program noted that it already collects certain outcome data from providers 

through mechanisms such as its reapplication process and quality service 

reviews. It said it plans to refine and expand its current tracking and data 

collection methods and explore the feasibility of developing more 

comprehensive outcome measures. The Trustee Program also concurred 

with our recommendation related to issuing formal guidance on what 

constitutes ability to pay. The program said that it will promulgate formal 

fee waiver guidance in a rulemaking later this year and will study the fee 

waiver variations among approved providers. 

As agreed with your offices, unless you publicly announce the contents of

this report earlier, we plan no further distribution of it until 30 days from 

the date of this letter. We will then send copies of this report to the 

Director of the Administrative Office of the U.S. Courts, the Attorney 

General, the Commissioner of Internal Revenue, and interested 

congressional committees. We will also make copies available to others 

upon request. In addition, the report will be available at no charge on the 

GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions concerning this report, please 

contact me at (202) 512-8678 or jonesy@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

Agency Comments 

Page 41 GAO-07-203 Bankruptcy Credit Counseling
last page of this report. GAO staff who made major contributions to this 

report are listed in appendix IV. 

Yvonne D. Jones 

Director, Financial Markets and 

 Community Investment 

Page 42 GAO-07-203 Bankruptcy Credit Counseling
List of Requesters 

The Honorable Patrick Leahy 

Chairman 

Committee on the Judiciary 

United States Senate 

The Honorable John Conyers, Jr. 

Chairman 

Committee on the Judiciary 

House of Representatives 

The Honorable Richard J. Durbin 

The Honorable Russell D. Feingold

The Honorable Edward M. Kennedy 

United States Senate 

The Honorable Howard L. Berman 

The Honorable William D. Delahunt 

The Honorable Chris Van Hollen 

The Honorable Sheila Jackson Lee 

The Honorable Zoe Lofgren 

The Honorable Jerrold Nadler 

The Honorable Robert C. Scott 

The Honorable Debbie Wasserman Schultz 

The Honorable Melvin L. Watt 

House of Representatives 

Page 43 GAO-07-203 Bankruptcy Credit Counseling
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

Our report objectives were to examine (1) the actions taken by the Trustee 

Program to approve credit counseling and debtor education providers; 

(2) the content and results of the counseling and education sessions; 

(3) the fees providers charge for counseling and education services, and 

the extent to which these services are provided regardless of debtors’ 

ability to pay; and (4) the availability of approved counseling and 

education services, and the challenges debtors may face in receiving these 

services. 

To address all of the objectives, we reviewed the provisions of the 

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 

(Bankruptcy Act) related to credit counseling and debtor education and 

examined its legislative history. We also reviewed the July 2006 interim 

final rule on application procedures and criteria for approval of credit 

counseling and debtor education agencies, and we obtained and reviewed

the public comments on this rule received by the Department of Justice’s 

Trustee Program. We also interviewed representatives of, and obtained 

relevant documentation from, the Trustee Program’s Credit Counseling 

and Debtor Education Unit, as well as the Federal Trade Commission, 

Internal Revenue Service (IRS), Administrative Office of the United States 

Courts, and the National Association of Attorneys General, including 

representatives from four states. In addition, we interviewed and collected 

documents from the American Bankruptcy Institute; National Association 

of Consumer Bankruptcy Attorneys; National Association of Bankruptcy 

Trustees; National Association of Chapter 13 Trustees; creditor 

organizations, such as the American Bankers Association and the 

Financial Services Roundtable; academic researchers; and consumer 

organizations, such as the Consumer Federation of America and the 

National Consumer Law Center. We also reviewed and analyzed data from 

the Trustee Program on complaints received related to credit counseling 

and debtor education providers, and the resolution of these complaints. 

Further, we conducted comprehensive interviews with representatives of

10 providers of credit counseling or debtor education that had been 

approved by the Trustee Program. Seven of these providers had been 

approved to offer both of these services, while one offered only credit 

counseling and two offered only debtor education. These providers were 

selected because they included the three largest providers of each service

and represented a range of different sizes, modes of delivery (in-person, 

telephone, and Internet), geographic locations, trade association 

affiliations, types of organizations, and years of experience. These 10 

providers represented 62 percent and 53 percent of all prefiling credit 

counseling and predischarge debtor education certificates, respectively, 

Page 44 GAO-07-203 Bankruptcy Credit Counseling
Appendix I: Scope and Methodology 

that were issued from January 9, 2006, through October 17, 2006. We

obtained from nearly all of them materials used to facilitate sessions, such 

as counselor training manuals, curricula, disclosures, workbooks, and 

handouts. In addition, we interviewed representatives of two trade 

organizations representing credit counseling agencies, the National 

Foundation for Credit Counseling, and the Association of Independent 

Consumer Credit Counseling Agencies. 

To address all of the objectives, we also reviewed a nonprobability sample 

of the Trustee Program’s case files for 32 provider applications that were 

approved and 11 applications that were rejected. Among the approved 

applications we reviewed, 15 were for credit counseling and 17 were for 

debtor education; as of October 2006, the Trustee Program had approved

153 credit counseling providers and 268 debtor education providers. 

Among the rejected applications we reviewed, 6 were for credit counseling 

and 5 were for debtor education; as of October 2006, the Trustee Program 

had rejected 96 applications. We did not do a probability sample because 

of the limited size of the sample we could review and because we wanted 

to ensure that the small sample included all of the largest providers and 

specific numbers of other types of providers. The criteria we used to select 

the provider application files included (1) size of the provider, as 

measured by number of clients served 12 months prior to applying for 

Trustee Program approval, (2) delivery mode (in-person, telephone, and

Internet), (3) type of organization (such as nonprofit agency, educational

institution, or Chapter 13 panel trustee), (4) length of time in business, (5) 

trade association affiliation, and (6) geographic location. The providers 

represented in our file review had issued 77 and 67 percent, respectively,

of all credit counseling and debtor education certificates issued from 

January 9 through October 17, 2006. 

The case files we reviewed included, among other things, agencies’ initial

applications, protocols, curricula and other guidance used by counselors 

and instructors, written materials and disclosures provided to consumers, 

fee schedules, and correspondence between the provider and the Trustee 

Program. To facilitate the case file review, we developed a data collection 

instrument to record specific information for each case file reviewed. To 

protect the confidentiality of agencies whose applications were approved 

or rejected, we did not record in our notes or include in our workpapers 

any identifying information from these file reviews (such as agencies’ and 

individuals’ names). Instead, we used unique numeric codes to track, for 

the purposes of our analysis, the information associated with individual 

applicants. We conducted our review on site at the offices of the Executive 

Office for U.S. Trustees. 

Page 45 GAO-07-203 Bankruptcy Credit Counseling
Appendix I: Scope and Methodology 

To address the first objective, in addition to the steps described above, we 

reviewed and analyzed the Trustee Program’s written policies, rules, 

guidance, and procedures for approving credit counseling and debtor 

education providers, including the initial and revised applications and 

instructions. To determine whether IRS had revoked the section 501(c)(3)

tax-exempt status under the Internal Revenue Code, or taken other 

enforcement actions against providers, we met with IRS officials and 

reviewed their publicly available information. To determine if providers 

had been subject to other enforcement actions, we met with 

representatives of the Federal Trade Commission and selected state 

investigative agencies. We also met with the Council of Better Business 

Bureaus and obtained Better Business Bureau reports for a selection of 

offices of the three largest providers. 

To address the second objective, we reviewed and analyzed the materials 

used by our sample of providers to facilitate in-person, telephone, and 

Internet counseling and debtor education. For context, we observed a 

credit counseling session conducted in person (for which the provider 

obtained the client’s consent) and listened to a recording of a counseling 

session conducted by telephone (which did not allow identification of the 

client). We also observed two debtor education sessions conducted by 

telephone—one live and one recorded—which did not include the clients’

identities. We also participated, with the provider’s consent, in three mock 

credit counseling sessions conducted via the Internet. 

To address the third objective, we reviewed guidance provided by the 

Trustee Program on its Web site related to fees and fee waivers. We 

reviewed and analyzed data maintained by the Trustee Program related to 

providers’ fees, but we determined that these data were not reliable. As a 

result, to learn providers’ fees and waiver policies, we relied largely on

testimonial evidence from 10 providers we interviewed. In some cases, we 

also reviewed fee information supplied by providers on their Web sites. 

We also reviewed a study by the National Foundation for Credit 

Counseling that included information on its members’ fees for prefiling 

counseling and debtor education sessions. 

To address the fourth objective, we reviewed available data from the 

Trustee Program on the number and characteristics of providers and 

analyzed the number and geographic distribution of providers. We also 

reviewed the Trustee Program’s Web site, which serves as its primary 

mechanism for supplying information on which providers have been 

approved by the program. We also reviewed a survey of bankruptcy judges 

that was conducted by the Federal Judicial Center in March 2006. Further,

Page 46 GAO-07-203 Bankruptcy Credit Counseling
Appendix I: Scope and Methodology 

at our request, the Administrative Office of the U.S. Courts gathered 

information from the bankruptcy courts in seven judicial districts related 

to how the court handles debtors who fail to submit prefiling credit 

counseling certificates with their bankruptcy petitions. To better 

understand the experience of pro se debtors, we also telephoned 

bankruptcy courts in seven judicial districts to inquire about the steps 

needed for a bankruptcy filing and reviewed the information and 

instructions on Web sites of nine bankruptcy courts. We also reviewed 

relevant portions of the Federal Rules of Bankruptcy Procedure, including

the standardized forms, attachments, and supporting instructions required 

by the courts to file a bankruptcy petition. In addition, we reviewed 

certain decisions issued by bankruptcy court judges regarding the failures 

of bankruptcy filers to fulfill the credit counseling requirement. To gather 

additional information on issues related to language, we met with a 

representative of an organization that advocates for improved language 

access and analyzed the Trustee Program Web site for the ease with which 

consumers can identify providers offering services in foreign languages. 

To understand the implementation of the credit counseling and debtor 

education provisions in the six judicial districts in Alabama and North 

Carolina, we interviewed staff at the Administrative Office of the U.S. 

Courts and two bankruptcy administrators, one in Alabama and one in 

North Carolina. We also reviewed provider applications promulgated by 

the judicial districts in these two states, as well as the lists maintained by 

the six judicial districts of providers that have been approved. As part of 

our case file review, we also reviewed materials from some credit 

counseling and debtor education providers that had been approved in one 

or more of these six districts. 

We conducted our review from February 2006 through March 2007 in 

accordance with generally accepted government auditing standards. 

Page 47 GAO-07-203 Bankruptcy Credit Counseling
Appendix II: Implementation of Counseling

and Education Provisions in Alabama and Appendix II: Implementation of Counseling North Carolina 

and Education Provisions in Alabama and 

North Carolina 

As a result of legislation passed by Congress in 1986, the administration of 

bankruptcy cases in Alabama and North Carolina is overseen by 

bankruptcy administrators rather than the Trustee Program. In the six 

judicial districts in these states, a bankruptcy administrator, under the 

Administrative Office of the U.S. Courts, is responsible for supervising the 

administration of bankruptcy cases, including maintaining panels of 

private bankruptcy trustees who liquidate debtors’ assets and monitor 

repayment plans. These administrators are also responsible for 

implementing the Bankruptcy Act’s credit counseling and debtor 

education provisions. To gather information on this implementation in 

these two states, we spoke with two bankruptcy administrators, one in 

Alabama and one in North Carolina, and an official of the Administrative 

Office of the U.S. Courts. 

Bankruptcy administrators in Alabama and North Carolina told us they 

have largely mirrored the requirements, guidance, and practices 

established by the Trustee Program for approving credit counseling and 

debtor education providers. They use a slightly modified version of the 

Trustee Program’s instructions and application forms, and follow a similar 

process for reviewing applications. Unlike the Trustee Program, the 

bankruptcy administrators do not require applicants and providers to 

submit a written waiver authorizing access to confidential information 

about the agency from IRS, although the administrators are currently 

considering such a measure. 

The six judicial districts in Alabama and North Carolina had approved 

between 9 and 14 credit counseling providers and between 10 and 14 

debtor education providers, according to information given on these 

districts’ Web sites as of January 2007.1

 Many of these providers had also 

been approved by the Trustee Program to offer services in other judicial 

districts, but a few were small, local organizations that were approved 

only in one district. None of the providers approved in these two states 

had had its tax-exempt status revoked by IRS. However, an IRS official 

confirmed that IRS is examining the tax-exempt status of two credit 

counseling agencies approved by bankruptcy administrators in Alabama 

and North Carolina. The Administrative Office of the U.S. Courts told us if 

a provider’s tax-exempt status were to be revoked, that provider’s 

 1

 The districts’ Web sites varied with respect to how often they updated their lists of 

approved providers. Therefore, the specific date for which these numbers apply ranges, 

depending on the district, from October 26, 2006 to January 24, 2007. 

Page 48 GAO-07-203 Bankruptcy Credit Counseling
Appendix II: Implementation of Counseling

and Education Provisions in Alabama and 

North Carolina 

approval to provide prefiling credit counseling could be reexamined. In 

addition, a Trustee Program official told us that one provider approved in 

Alabama or North Carolina had applied but been denied approval by the 

Trustee Program because, among other things, its counseling was not 

found to be adequate and its board of directors was not found to be 

sufficiently independent.

In general, the course content and mode of delivery for credit counseling 

and debtor education providers in Alabama and North Carolina were 

similar to those in other judicial districts. We found only two notable 

differences. First, the Trustee Program requires that approved Internetbased credit counseling sessions include a separate component in which 

the client has individual communication with a counselor, such as a 

telephone conversation or Web-based chat. However, administrators in 

Alabama and North Carolina told us their approved credit counseling 

sessions may be conducted entirely via the Internet without any direct

interaction between the debtor and a counselor. Second, the fees charged 

by providers for credit counseling and debtor education sessions were 

typically $25 to $40, according to the administrators, as compared with an 

average of roughly $50 in the rest of the nation. 

Page 49 GAO-07-203 Bankruptcy Credit Counseling
Appendix III: Comments from the Department Appendix III: Comments from the of Justice 

Department of Justice 

Page 50 GAO-07-203 Bankruptcy Credit Counseling
Appendix III: Comments from the Department 

of Justice 

Now on p. 13. 

Now on pp. 18-19. 

Page 51 GAO-07-203 Bankruptcy Credit Counseling
Appendix III: Comments from the Department 

of Justice 

Page 52 GAO-07-203 Bankruptcy Credit Counseling
Appendix III: Comments from the Department 

of Justice 

Page 53 GAO-07-203 Bankruptcy Credit Counseling
Appendix IV: 

A

GAO Contact and Staff 

cknowledgments 

Page 54 GAO-07-203

Appendix IV: GAO Contact and Staff 

Acknowledgments 

Yvonne D. Jones, (202) 512-8678 or jonesy@gao.gov

In addition to the contact named above, Jason Bromberg, Assistant 

Director; Gwenetta Blackwell-Greer; Anne A. Cangi; Emily R. Chalmers; 

Alexandra K. Dew; Melissa J. Jaynes; Carl M. Ramirez; and Omyra 

Ramsingh made key contributions to this report. 

Bankruptcy Credit Counseling

GAO Contact 

Staff 

Acknowledgments 

(250274) 
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