The Bankruptcy Abuse Prevention and Consumer Protection Act
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which heralded a major reform to the bankruptcy system in the United States. As the name implies, the BAPCPA had two main objectives:
- To prevent people in debt—individual consumers—from abusing Chapter 7 as a means of discharging all of their outstanding debts.
- To protect consumers from being punished by those who abuse the system.
The underlying reason and impetus for the BAPCPA was the perception that individuals were irresponsibly or even maliciously taking out loans that they would not be able to pay back. As a result, according to proponents of the reform, honest consumers who pay back loans and who seek more loans were being punished with higher interest rates. The main proponents of the reform were, understandably, credit card companies and lenders hoping to avoid widespread use of Chapter 7. Opponents of the reform argued that the supposed abuse of the system was not nearly as widespread as some people had claimed and that people arrive at the decision to file bankruptcy because they need to, not because they want to.
Interestingly, in the days immediately prior to the BAPCPA going into effect in October 2005, there were reports that of a dramatic increase in the number of bankruptcy claims. Whether this is because people needing to file bankruptcy feared that it would not be possible after the new law, or whether people were trying to take advantage of the final days of the old system, is not entirely clear.
Filing Under the New Law
If you are facing insurmountable debt, the new restrictions set forth by the BAPCPA will not, in all likelihood, hinder your ability to file for bankruptcy. What it could influence, however, is which type of bankruptcy that you can file.
One of the main ways that the BAPCPA sought to prevent abuse and protect consumers was by introducing stricter eligibility criteria for filing Chapter 7 bankruptcy. Since 2005, people filing for Chapter 7 have to pass a means test. If your average income is greater than your state’s median income, then you will, in almost all cases, not be eligible for Chapter 7 liquidation and will have to file Chapter 13 instead. In addition, the BAPCPA requires that people filing bankruptcy must complete a credit counseling course and debt management course approved by the U.S. Trustee.
For more information on new rules and requirements, contact an experienced bankruptcy attorney in your area.
This information has been provided by the Law Offices of Walter J. Benenati, bankruptcy attorney, 105 E. Robinson Street, Suite 302, Orlando, Florida 32801