Bankruptcy Reform: Value of Credit Counseling Requirement Is Not Clear
Published: 2007-04-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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.
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  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.
subsections: section_title: Background
paragraphs: Bankruptcy is a court procedure designed to help consumers and  businesses eliminate debts they cannot pay or repay them with the court’s  protection. The filing of a bankruptcy petition in most cases operates as  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. 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  Bankruptcy Code, including the addition of new credit counseling and  debtor education requirements.
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.
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  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. 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. 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,   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.
section_title: The Trustee Program’s Process for Screening Providers Is Designed to Help Ensure Statutory and Program Requirements Are Met
paragraphs: 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.
subsections: section_title: Agencies Must Meet Statutory and Trustee Program Requirements to Be Approved
paragraphs: 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).
The 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 interest- free 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. 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. 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  providing counselors with adequate training and experience. The rule  also established procedures permitting the Trustee Program to remove  agencies from the approved list, including an administrative review  process before removal.
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.
section_title: The Trustee Program Developed an Approval Process Designed to Help Ensure Compliance with Statutory and Program Requirements
paragraphs: 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. A wide range of  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  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  and 11 applications that had been denied. 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, higher- risk 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.
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.
section_title: Few Complaints Raised about Providers’ Competence or Integrity, although IRS Is Examining the Tax-Exempt Status of Four Providers
paragraphs: 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  standards. In addition, many of these providers were accredited by the  Council on Accreditation.
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.
subsections: section_title: Complaints Have Been Limited
paragraphs: 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.
Between October 2005 and October 2006, the Trustee Program received  124 complaints about credit counseling and debtor education providers  out of more than 930,000 certificates issued. 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.
section_title: IRS Is Examining Four Providers Approved by the Trustee Program
paragraphs: 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  Revenue Code. 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.
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  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. The  interim final rule also requires that providers notify the program  immediately if IRS cancels or terminates their tax-exempt status.  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. 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). The  interim final rule does allow the Trustee Program to immediately remove a  credit counseling agency from the approved list if IRS revokes the  agency’s tax-exempt status. 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.
section_title: Counseling and Education Sessions Meet Statutory and Program Requirements, but a Wide Range of Observers Question the Value of the Counseling Requirement
paragraphs: 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.
subsections: section_title: Credit Counseling Sessions Are Designed to Provide Debtors with Individualized Assessments
paragraphs: 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 the opportunities for available  credit counseling and assist such individual in performing a related  budget analysis.” The act requires that this session include an analysis of  a client’s current financial condition and the factors that caused this  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. 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.
section_title: Most Credit Counseling Is Conducted by Telephone or Internet
paragraphs: 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. 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. 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  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.
section_title: Available Evidence Indicates That Prefiling Credit Counseling Results in Few Debt Management Plans
paragraphs: 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  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.
section_title: Many Question the Value of the Credit Counseling Requirement, but Data on Outcomes Are Limited
paragraphs: 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.”  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.
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. 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  great majority of clients receiving prefiling counseling have few viable  alternatives to bankruptcy. 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.
During roughly the first half of 2006, some 381,005 counseling certificates  were issued and 263,408 bankruptcy petitions filed. 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  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. As we have  reported in the past, meaningful data on program outcomes and costs are  essential for appropriate oversight and decision making. 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.
section_title: Debtor Education Sessions Are Designed to Offer Financial Management Skills
paragraphs: 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. 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:    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.
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  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. 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.
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.
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.
section_title: Provider Fees Are Generally Considered Reasonable, Although Fee Waiver Policies Vary
paragraphs: 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.
subsections: section_title: Providers Must Charge Reasonable Fees and Provide Services Regardless of Clients’ Ability to Pay
paragraphs: 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. 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. 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.
section_title: While Providers’ Fees Are Considered Reasonable, Fee Waiver Policies Vary
paragraphs: 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. 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. Some providers we  interviewed used as their threshold a different percentage of the poverty  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.
section_title: Trustee Program Has Not Issued Formal Guidance on Determining a Client’s Ability to Pay
paragraphs: 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,  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.
section_title: Supply of Providers Appears Sufficient and Actions Under Way Address Challenges Some Consumers May Face Fulfilling the Requirements
paragraphs: 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.
subsections: section_title: Enough Counseling and Education Services Exist to Meet Demand
paragraphs: 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  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.
section_title: In-Person Counseling Is Not Always Available, but Few Seek It
paragraphs: 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  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.
section_title: Steps Under Way to Address Challenges of Certain Populations in Accessing Services
paragraphs: 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.
subsections: section_title: Non-English Speakers
paragraphs: As of October 2006, many credit counseling and debtor education  providers offered their services in Spanish, and several offered services in  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. 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.
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.  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.
section_title: Individuals With Special Needs or Circumstances
paragraphs: 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.
section_title: Debtors Without Attorneys Also Can Face Challenges
paragraphs: 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,  as few as 4.5 percent and as many as 24.9 percent of debtors filed pro se.  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  the Federal Judicial Center asked U.S. bankruptcy judges what procedures  they follow when a debtor has not produced a prefiling credit counseling  certificate. 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.
section_title: Conclusions
paragraphs: 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.
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. 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.
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.
section_title: Recommendations
paragraphs: We recommend that the Attorney General direct the Director of the  Executive Office for U.S. Trustees to do the following:    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  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.
section_title: Agency Comments
paragraphs: 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  last page of this report. GAO staff who made major contributions to this  report are listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: 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,  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.
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,  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.
section_title: Appendix II: Implementation of Counseling and Education Provisions in Alabama and North Carolina
paragraphs: 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. 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  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 Internet- based 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.
section_title: Appendix III: Comments from the Department of Justice
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: 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.