To no one’s surprise (or at least, no one who is involved in the consumer bankruptcy process), the GAO found that the benefits of the credit counseling requirement were not clear. Although the requirement is intended to make sure that consumers have adequate information to make informed decisions about bankruptcy and are aware of their other options, the evidence suggests–as consumer bankruptcy attorneys and credit counseling agencies have been pointing out almost since the moment BAPCPA took effect–that most consumers have reached the crisis point by the time they seek pre-filing credit counseling, and are unlikely to have other viable options available at that stage.

The credit counseling requirement is still in effect, and filing for bankruptcy without having completed the required credit counseling briefing and filed a certificate can mean dismissal–which can have catastrophic results when the automatic stay is lifted and actions like foreclosure and repossession can move forward. However, the GAO is suggesting that the U.S. Trustee Program begin tracking and analyzing outcomes of the pre-filing credit counseling requirement.

The GAO also suggested that the U.S. Trustees create clearer guidelines for determining when fee waivers based on inability to pay should be required.

Those provisions were challenged almost immediately, and the Milavetz case in Minnesota was among the first to challenge the Constitutionality of those restrictions. Nearly a year and a half later, that court has entered a summary judgment order declaring that those restrictions cannot be applied to Minnesota attorneys.

But of course, that came as a surprise to no one. We all saw the huge glut of filings in the fall of 2005, when the law was abou to change and consumers were under the impression that they wouldn’t be able to file after October 17. And in the aftermath, a variety of factors kept filings down, not the least of which was that a lot of people–probably a couple of hundred thousand of them–who would otherwise have filed in 2006 had rushed to do so in the fall of 2005.

But the clear fact that never seems to make the headlines is that filings have been steadily climbing since shortly after the new bankruptcy law took effect in the fall of 2005, and they continue to climb. The first quarter of 2006 saw 116,771 filings, while the comparable period in 2007 recorded an estimated 186,788 filings–that’s an increase of more than 50%. The exact point where the rush and dearth settle and we find the true post-BAPCPA levels remains to be seen, but current filing rates make it seem likely that we’ll bring in 2007 in the neighborhood of 1 million filings.

The press release criticized what it characterized as a White House tendency to blame the homeowners for signing up for deceptive subprime mortgages, and suggested that the federal government coordinate stakeholders to create emergency funds (from public and private sources) to assist families in need in refinincing subprime mortgages.

Although initial projections focused on the ARM adjustments scheduled to take place in 2006–and those dire predictions have largely come to pass–the Joint Economic Committee’s report suggests that subprime foreclosures will continue to increase in 2007 and 2008 as an additional 1.8 million hybrid ARMs adjust upward.

At the same time, home values are declining in many areas, and drastically in some. Arizona home values depreciated by more than 26% from 2005 to 2006, and other areas have seen drops nearly as extreme. Florida, California, Hawaii, and the District of Columbia have all seen property values decline by 15% or more, making both sale and refinancing unrealistic for many homeowners.

And although most experts agree that while bankruptcy is more complicated, more time-consuming, and more expensive than it was before the “reform”, most data suggests that the actual impact in terms of qualifying for bankruptcy protection has been virtually non-existent–credit counseling agencies charged by the U.S. Trustee’s office with helping pre-bankruptcy candidates assess their options have indicated that fewer than 5% of them have any other realistic option.

Perhaps that’s not surprising in view of the size and power of the public relations machine controlled by the consumer credit industry–the industry that stands to gain the most is the average consumer in financial trouble believes that he can no longer file bankruptcy.

Even in view of all that, I was surprised to view a press release this morning that announced “Bankruptcy Won’t Stop Foreclosure for Troubled Borrowers”. A careful reading of the article reveals that the headline is ever-so-cautiously balanced on the obvious fact that bankruptcy won’t allow a homeowner to simply keep his home and stop making payments on it forever…a far cry from “won’t stop foreclosure”. Unfortunately, many consumers won’t read the article carefully, and will only absorb the misleading headline that gives the false impression that their options are more limited than they might have believed.