Lesson From the Trenches: Debtor Educator in Theory and Practice

I. INTRODUCTION Bankruptcy reform is still pending in Congress,2 with both the House and Senate having passed their own versions of legislation designed to improve the bankruptcy system.3 The conference committee to reconcile differences has been stalled, most recently because of the aftermath of the September 11th tragedies.4 That IMAGE FORMULA78 pause has not stopped discussion and debate about what type of legislation might ultimately emerge and whether that contemplated is justified, wise, and feasible. It is in that spirit that this Article focuses its attention on one particular proposed change to the bankruptcy laws: the introduction of a post-filing financial management course.5 Interestingly, post-filing financial management courses and prebankruptcy debtor counseling have been one of the less frequently debated features of the pending legislation. In his recent book, Debt's Dominion, Professor David Skeel observes that educational initiatives were supported by creditors, as they would serve to increase consumer debtor repayment and fiscal responsibility and to decrease utilization of the bankruptcy process.6 Skeel suggests that debtor advocates, such as ourselves, might be expected to be disinclined toward these educational proposals, but in fact, have been supportive - consistent with longstanding beliefs in fostering consumer empowerment.7 Our Article begins with a discussion of the rationale for post-filing debtor education. We then turn to a detailed description of a pilot project to provide a voluntary financial management course to 1200 individual debtors in the Eastern District of New York,8 sponsored by the Coalition for IMAGE FORMULA80 Consumer Bankruptcy Debtor Education (the "Coalition").9 Our "in the trenches" work in developing, implementing, overseeing, and studying the Pilot Project has enabled, and will continue to enable, us to reach certain conclusions with respect to the development and implementation of financial management courses for debtors, as well as the mandate for debtor education in the pending bankruptcy bills. II. RATIONALE FOR POST-FILING DEBTOR EDUCATION We live in a world in which money and credit play a central role in our daily lives. Over the past two decades, consumer credit has expanded exponentially.10 Between 1981 and 2001, total consumer credit outstanding expanded by more than 400%, from $370 billion to $1.7 trillion.11 Revolving consumer credit, which is largely credit card debt, represents the lion's share of this increase; it increased more than ten times over this period, from approximately $61 billion to $670 billion.12 As a result of this growth, an increasing number of individuals, many of whom previously were excluded from the world of credit, have gained access to the credit markets.13 Increased competition, low interest IMAGE FORMULA83 rates, technological advances, and deregulation in the consumer finance sector have all helped to expand access to consumer credit to a broader socioeconomic range of borrowers, including sizable increases in the subprime lending market.14 Rapid growth in the market for subprime consumer lending has raised regulatory concerns in light of findings that subprime lending is disproportionately concentrated in the nation's minority and lowincome neighborhoods, and that some subprime lenders have employed predatory practices to induce this growth.15 Consumers are regularly exposed to a complex array of credit products in the mail, on television, in stores and in various print media."6 The vast majority of consumer legal protections related to IMAGE FORMULA85 credit require lenders to provide disclosure to borrowers.17 The efficacy of this regulation is premised upon consumers' abilities to read and understand the material that the purveyors of credit are required to distribute. …