Often maligned because it makes it tougher for consumers to erase their debts, the new federal bankruptcy law also contains provisions to help make it tougher for consumers to slip into another personal financial recession.

What should also go a long way toward keeping consumers out of bankruptcy court again, two provisions in the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) underscore the importance of financial education and credit counseling.

Many mortgage programs now require credit and financial counseling before consumers become home owners, because numerous independent studies have shown consumers who are schooled in personal finances, credit and the like, compared to those who aren't, are more likely to keep their home ownership, their credit and their financial goals intact.

The 2005 Bankruptcy Act, effective October 17, 2005, requires that all individual debtors who file bankruptcy must undergo credit counseling in an individual or group session within six months (180 days) before filing for bankruptcy relief. The session could actually keep them out of bankruptcy.

The new bankruptcy act also says bankrupt debtors must complete a more involved "instructional course in personal financial management" before debts can be discharged.

Generally, when a debt is discharged by the court it is no longer enforceable against the debtor. That doesn't mean it won't affect the debtor's credit. Chances are, it will. Once a debt is discharged, however, that simply means the debtor is no longer legally obligated to pay it.

Depending upon the court's bankruptcy ruling, all debts may or may not be discharged. The new law outlines which debts can be discharged and circumstances that could prevent discharges.

In any case, all the required counseling and educational information must be provided only by a U.S. Bankruptcy Court-approved credit counseling agency or debtor education course provider.

Approval comes only by meeting stringent requirements for experience, financial security and bonding, among others. The court keeps an updated state-by-state list of approved agencies and providers.

There are exceptions to both counseling requirements for certain debtors or because of certain circumstances, or if the bankruptcy administrator determines that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

Most often, however, counseling is required and the bankruptcy court's process for approving counseling agencies and education courses can give consumers an idea of what they can expect to learn.

• Credit counseling agencies must provide approximately 90 minutes of counseling that includes a budget analysis and credit counseling designed to consider all the alternatives -- not just bankruptcy -- to resolve a client's credit problems. That includes an analysis of the client's current financial condition, a discussion of the factors that caused the condition and information on how the client can develop a plan to respond to future problems without defaulting on debts.

• More exhaustive information in a minimum two-hour financial management course is broken down into four categories: budget development, money management, the wise use of credit and consumer information. Each category comes with minimum curriculum requirements.

Budget Development -- Consumers learn how to set short- and long-term financial goals and to develop skills necessary to achieve those goals. Lessons include calculating gross vs. net monthly income and identifying monthly expenses as fixed, variable, or periodic.

Money Management -- Information includes the importance of keeping adequate financial records; developing decision-making skills to distinguish between wants and needs; comparison shopping; maintaining adequate insurance coverage and saving for emergencies, for periodic payments and for financial goals.

Wise Use of Credit -- The session should provide information on the types, sources and costs of a variety of credit and loans; identifying debt-trouble warning signs; appropriate use of credit; alternatives to credit and how to check one's credit report.

Consumer Information -- The final session provides clients with resources for consumer assistance; information on related consumer protection laws and regulations and protection against consumer fraud.

The approved credit counseling agencies course work can come with a fee based-on-income or be offered for free to those who can't afford the cost. Approved agencies can't reject bankruptcy clients because they afford the lessons.

Coming on Monday: New federal bankruptcy law requires more than three hours in credit counseling and financial management from agencies the bankruptcy court approves. Court-approval doesn't necessarily mean all agencies are created equal. Here's how to choose one to make sure you get the most out of your court-ordered schooling.

Published: November 18, 2005

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.