Overview of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was made into law in 2005 in an attempt to prevent consumers from abusing the bankruptcy system. The courts felt that some debtors were using bankruptcy as a means to walk away from their financial obligations. This was a concern particularly about the use of Chapter 7 bankruptcy, which allows a debtor to liquidate all her assets in exchange for complete debt relief. This “new bankruptcy law” takes a presumption of fraud, making many aspects of filing for bankruptcy more difficult. Here are the some of the key changes in the new bankruptcy law.

Means Test
The means test is used to determine eligibility for Chapter 7 bankruptcy; however, it is estimated that 85 percent of debtors are not subjected to the means test, and a large majority of the remaining 15 percent pass. BAPCPA looks at the gross income of a debtor 6 months prior to filing for bankruptcy. If his gross income is above the state’s median household income, the debtor is required to calculate his monthly disposable income. If his disposable income is enough to make his payments on debt, he will not qualify for bankruptcy under Chapter 7 and will have to resort to a Chapter 13 bankruptcy filing, which puts his debt owed on a payment schedule.

Credit Counseling and Financial Management Education
A debtor must now complete credit counseling prior to filing for bankruptcy. For a fee, she can attend either group or individual counseling with a government-approved credit counseling agency. In addition, before any debts can be discharged, the debtor must complete a financial management course. 

Time Period between Chapter 7 Filings
A debtor must wait 8 years before he can file for another Chapter 7 bankruptcy. The period between bankruptcy filings was previously 6 years.

Less Automatic Stay Protections
Prior to the new bankruptcy law, debtors were provided an immediate protection against debt collectors or lawsuit actions. This “automatic stay” stopped legal actions against the debtor. However, now BAPCPA states that certain legal actions, such as divorce proceedings and evictions, cannot be delayed.   

Attorney’s Increased Liability
An attorney is now responsible to investigate her client’s claims and can be held personally liable if her client falsifies information. She will have to cover her client’s court fees as well as the creditor’s court costs. This change makes it harder for a debtor to find an attorney that will take on his case.

Priority of Child Support Over Other Debt
In addition to overriding the automatic stay provision, child support orders are first in line for repayment, and alimony also gets priority over all payments to creditors.

Harder to Discharge Credit Card Debt
BAPCPA has made credit card purchase discharges more difficult by expanding the time frame from 60 to 90 days and reducing the total of credit charges from $1,225 to $500. If a debtor makes a credit card purchase over $500 within 90 days of filing for bankruptcy, this debt will not be discharged. Cash advances can be no more than $750 and have to be at least 70 days prior to filing.

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