History of Debtor Education in Dallas and Fort Worth
(Prepared for Bill Neary, U.S. Trustee, April 1998)

(Note:  In 1999, the fourth segment was added to include budgeting, and the Chapter 13 legal and administrative video was moved to the morning session by showing the video 3 to 4 times with individual headphones.)	
Debtor Education and Credit Rehabilitation are subjects that are integral parts of the philosophy of the Chapter 13 trustees in the Dallas and Fort Worth Divisions of the Northern District of Texas.  We began an educational program for Chapter 13 debtors in Dallas-Fort Worth in November of 1984.  The curriculum went through an evolution until it was condensed to 2 mandatory days with 3 more optional days of classes.  All Chapter 13 debtors were required to attend the first two of the five days of classes.  The first day was the 341 hearing date; the second was a Saturday, usually a week later.  The required classes focused on budgeting, the cost of credit, the Chapter 13 legal and administrative process, and credit re-establishment.  In the fall of 1992, we eliminated the three optional Debtor Seminar days. These had been offered on a quarterly basis and included such topics as goal setting, prioritizing, planning, communication, decision making, and time and stress management.  In 1993 the debtor seminar was further limited to a mandatory one-day session that lasted all day and focused on the Chapter 13 administrative process and budgeting.  That remained the structure of the debtor seminar until 1996. In the fall of 1996 the schedule changed slightly in that the class began with an orientation, dismissed for the debtors to attend 341 meetings, and resumed after lunch.   This schedule is basically the same one used now. Both husband and wife are required to attend the class if they file a joint petition.  The classes are held in the same location and on the same day as the 341 meetings. The reaction to these classes has historically been very favorable, and for many years they were our sole effort at debtor rehabilitation. 
	Renewed interest in debtor education in 1996-1997 led to a partnership of several Chapter 13 trustees, the Executive Office of the US Trustee, the National Foundation for Consumer Credit, and VISA, USA, to produce a standardized, high quality curriculum for debtor education that would be available to any Chapter 13 trustee who wanted it.  The product follows the general concepts of the VISA Choices and Decisions program on credit and financial management available to high schools in that it is designed to be interactive and is multi-media.  The materials now in production include videos, overhead transparencies, instructor manuals, student books and a PowerPoint presentation of the lessons.    We have been involved in the developmental stages of the project and are currently testing it in the Fort Worth debtor seminar.  We still follow the schedule of required attendance for all debtors in class on the day of the 341 Meeting.  The day begins with a 30-minute introduction by the trustee and presentation of the student book with suggested assignments to be done during the morning dead-time.  The class then breaks for debtors to attend their respective meeting of creditors.  It reconvenes at 12:15 p.m. to begin the afternoon educational sessions.  The first segment is on communication, specifically how it affects spending patterns and how it is important to the successful formulation and completion of a Chapter 13 plan.  The next segment is on planning as it applies to all areas of a person’s life and leads to a segment on the Chapter 13 plan, focusing on the legal and administrative aspects.  The class then sees a motivational video on goal setting and ends with a representative from the local Consumer Credit Counseling Service, who comes to invite and encourage the debtors to attend an optional budgeting class offered at our facility on a Saturday morning or a Thursday evening.  We use several instructors, some of whom are staff members, one who is an attorney and former teacher, and one who comes from CCCS.  Average class size for the mandatory full day class and 341 meeting in Fort Worth is 65 people.  These classes are held every Tuesday right now.  The average attendance for the optional budgeting class has been about 10 people.  We trade the use of the classroom space for the CCCS instructor’s time to present the budgeting class so CCCS has access to our facilities to offer training sessions and classes of their own at times other than the Chapter 13 classes.  The budgeting classes have been available since November 1997 and are offered two Saturdays and two Thursdays a month.  The large mandatory class is used primarily for information dissemination.  We ask each person to fill out an evaluation form to rate the value of the sessions, to make comments or suggestions, and to sign up for the optional class on budgeting.  It also is the record of attendance.  The written comments have been about 95% favorable.  The biggest criticism has been the inefficient use of the morning time while 341’s are being held.  We are investigating changing the day of the 341’s and class from a court day so that the educational sessions could be given in the morning and the 341’s held in the afternoon.  That way we think we could use the time more efficiently and incorporate the budgeting session into that same day.  We now are using Units 1-3 of the VISA curriculum; budgeting would add Unit 4.  We use the videos for each session and some of the overheads. We suggest that the debtors  read and discuss at home the student pages that we don’t have time to cover in class.  The attitudes of the debtors change markedly from the time they enter the room at 8:30 a.m. and the time they leave at 4:00 p.m.  They tell us that the feel encouraged instead of humiliated and appreciate the information they are given.  They are very interested in resuming life as financially responsible consumers after Chapter 13.  They begin to understand the value of credit and the important role it plays in our consumer society. 
To enhance the education program and encourage higher repayments to unsecured creditors, we started a Credit Rehab program in Dallas and Fort Worth in October 1990, modeled after the ones in Columbus, Ohio and San Antonio, Texas.  Our program has some built in differences from those two in that (1) our mandatory debtor seminar was already in place and (2) our Chapter 13 filings have historically been primarily plans with low or no payments to unsecured creditors and with little organized creditor involvement in the Chapter 13 process.  The credit rehabilitation program has added educational seminars for debtor attorneys, creditors, and their staff members through an annual conference that last year attracted over 400 registrants.  It also provides a quarterly newsletter to over 2600 creditors, attorneys, and other interested parties to inform them of any changes in trustee policies, federal laws, and bankruptcy trends.  The program began with 26 participating creditors in 1991 and now has 74 participating creditors.  The policies of the credit rehab program have been developed in consultation with an advisory board of credit grantors, debtor attorneys, and others involved in the bankruptcy community.  The trustees have a credit liaison in the Fort Worth office who works with credit grantors and qualifying debtors from both Fort Worth and Dallas.  This liaison has a background in the banking industry and is experienced in working with  credit bureaus.  Completed debtors who repaid at least 75% to unsecured creditors qualify for help in re-establishing credit and correcting credit reports after the Chapter 13.  The credit is not guaranteed.  That decision is up to the participating creditor who agrees to consider referrals in their current financial position without holding the Chapter 13 against them.  However, the approval rate for program participants is 85% of credit applications.  The role of the trustee’s office is primarily one of communication and coordination.  We identify and notify qualifying debtors as their cases close; work with them to asess any credit needs and ability to repay; help with documentation to correct credit reports; provide the list of participating creditors and make the initial contact in many instances; accumulate statistics; publish newsletters to debtors annually and quarterly to creditors and debtor attorneys; organize annual educational conferences; work with the advisory board to set and enforce guidelines; work with trustees on any other projects involving the debtor bars, judges, Congress, and/or credit community; and cooperate with other trustee offices.   
	 Debtor education combined with credit rehabilitation is an integral part of the Chapter 13 debtor rehabilitation process and a natural extension of efforts to educate debtors in preparation for becoming financially responsible citizens and consumers who will not have to repeat the bankruptcy process. It provides the possibility of a tangible reward.  Our current amount of post-bankruptcy new credit approved in the D/FW credit rehabilitation program is over 3.5 million dollars.  This represents 352 loans since our first debtor notification in January 1992.  Our default rate is less than 1%.  We track debtor defaults on new credit through the debtors themselves and through quarterly reports completed by our participating creditors.  We now have 74 enrolled participating creditors and several others who work with us on an informal basis.
We continue to develop methods of tracking meaningful statistics. Since beginning a credit rehab program, our case statistics show an increase in the number of Chapter 13's filed vs. the number of Chapter 7's.  In 1990 when we began our credit rehab program, the ratio in Dallas-Fort Worth was 41% Chapter 13's vs. 59% Chapter 7's.  Records for Fiscal Year 1996-1997 reflect an increase in Chapter 13 filings to 51% of combined 13’s and 7’s in our divisions. Nationally, the ratio is closer to only 33% Chapter 13’s. 
	Distributions to unsecured claims have also increased since the advent of the credit rehabilitation program.  The average payment on unsecured claims per case went from $391.21 in 1994 to $642.58 in April of 1998.  Payments to unsecured creditors as a percentage of total disbursement increased from 7% in 1991 to 11% in 1997.  In fiscal year 1997, the two trusteeships disbursed over 60 million dollars.  Of that, 6.8 million was paid on unsecured claims.
Credit Rehabilitation continues the educational process begun with the debtor seminar at the beginning of a Chapter 13 case.  It allows for more individualized contact with the consumer and a more tangible result.  It provides the incentive and motivation for debtors to make the many sacrifices needed to recover from financial disaster and to begin making behavioral changes to avert future financial crises.  It is "the light at the end of the tunnel."  It provides the hope without which the debtor's self confidence and ability to take charge and act would be lacking.  Furthermore, it is only fair that a debtor who has sacrificed over a 3, 4, or 5 year period to repay as much as he or she possibly can of his or her debts be rewarded with an opportunity to obtain new credit in reasonable amount, for legitimate needs.  By providing educational tools and a system for  financially responsible former Chapter 13 debtors to have access to informed, progressive credit grantors, Chapter 13 debtor education and credit rehabilitation programs work together to benefit all parties, a true win-win situation.

Sample Comments from Debtors:

(From the class of April 17, 1998)

“I enjoyed all the films.  They made us stop and think about the way we have ignored our responsibilities - about spending money we really didn’t have.  We’ve stopped and ate[sic] out a lot of times when we should of went[sic] home and ate….We are going to start to do things differently.  I want to hold up my head again and get my bills paid and keep them paid.  And when I lay down to sleep at night, I want to be able to rest and feel good when I wake up.”

“The films were good examples to exactly see how couples were dealing with Chapter 13 bankruptcy.”

Communication video is helpful for married couples.  I wish my husband and I had gotten here 5 years or so ago.”

“Examples given by instructor and videos are true to everyday life.”

“I want to be able to talk to my wife and her to me.  I think the films were very helpful and important (communication and planning).  Zig Ziglar was great.  I always knew goal setting was important.  I just didn’t know the correct way to do it.  Thank you.”

“This seminar was very helpful.  I could relate to the videos shown.”

“Communication is  very important in our everyday life.”