Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)
All bankruptcy petitions filed on or after October 17, 2005 are governed by The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The main objective of this bankruptcy reform is to prevent abusive or fraudulent bankruptcy filings. One of the most significant provisions of the new law is the Chapter 7 means test, which is intended to make it harder to file for Chapter 7 relief. Generally under Chapter 7, non-essential assets are sold to pay off debt, and any remaining debt is forgiven.
Under the new law, the scope of relief is more limited, more debts have to be repaid to creditors, and debtors (individuals filing for bankruptcy) have to undergo mandatory credit counseling. BAPCPA compliance also involves a great deal of important paperwork. If you are thinking about filing for bankruptcy, it is more critical than ever to consider enlisting the help of an experienced bankruptcy attorney.
BAPCPA Bankruptcy Means Test
Prior to the BAPCPA, there was no Chapter 7 "means test" and debtors could file Chapter 7, 11 or 13 at their option. Now debtors who have the ability to repay some or all of their debts may be forced to file Chapter 11 or Chapter 13. Under the means test, if the debtor's household income over the preceding six months is above the state median (as determined by the Census Bureau), it is "presumptively abusive" to file Chapter 7. The debtor can overcome this presumption and proceed in Chapter 7 if the debtor's disposable income (see sidebar) falls under a certain threshold. Debtors whose disposable income is above the threshold but who do not realistically have the means to fund a repayment plan (e.g., recent loss of job) may be able to get permission to proceed under Chapter 7 anyway. Median income levels vary by state and by household size so you should speak with a bankruptcy lawyer in your area for help with the means test.
Under the new law, individuals must obtain pre-filing credit counseling from a court-approved non-profit agency to be eligible for bankruptcy relief. The goal of this process is to see whether an alternative plan can get the debtor back on his or her feet without having to file for bankruptcy relief. The counseling takes place in person, on the phone or over the Internet. Before receiving a bankruptcy discharge the debtor must also take a financial management course. Your attorney can direct you to an approved agency in your area, or you can go to the United States Trustee's website.
The automatic stay is an important part of any bankruptcy proceeding as it protects the debtor from wage garnishments, property foreclosures and most other collection actions while in the bankruptcy process. The BAPCPA attempts to discourage bad faith petitions by reducing its availability to certain debtors. For example, the new law limits or prohibits the automatic stay for filers who have had prior dismissals within the past year. Fortunately, a bankruptcy attorney may petition the court to invoke the stay based on a showing of good faith. However, even if the automatic stay is in effect, it no longer protects the debtor from certain actions such as eviction proceedings due to the debtor's failure to pay rent.
Dischargeable debts are obligations that the debtor cannot be relieved from in bankruptcy. The BAPCPA reclassified certain formerly dischargeable debts as non-dischargeable in bankruptcy, including:
- Domestic support
- Student loans
- Unfiled, filed late or fraudulently filed taxes
- Drunk driving injuries
- Fines and civil damages for willful or malicious conduct causing personal injury or death
For a complete list of potentially non-dischargeable debts and how they might affect you, speak to a qualified bankruptcy attorney.
Other Noteworthy Changes
Other noteworthy changes to the BAPCPA include:
- Creditors can reclaim goods sent to the debtor within 45 days of declaring bankruptcy
- Domestic support obligations, namely child support, alimony and maintenance, are elevated to priority status and must be paid before other creditors
- Greater restrictions on pre-petition cash advances and purchases of luxury goods
- Increased documentation required (e.g., tax returns)
- Greater accountability imposed upon attorneys for the accuracy of the debtor's information
- Increased waiting periods to file multiple bankruptcies (see sidebar)
If you feel as if you are drowning in debt, it is important that you contact a bankruptcy attorney as soon as possible. An experienced bankruptcy attorney will analyze your legal options under the new law and provide expert help and guidance throughout the bankruptcy process.
Unfortunately, financial problems often bleed into personal relationships, causing unwanted strain. As a result, some debtors find themselves facing the regrettable prospect of bankruptcy and divorce at the same time. If your relationship with your spouse has been affected by your financial situation, you may need to speak with one or more divorce lawyers. A qualified divorce attorney can provide you with information on the different types of divorce as well as other possible alternatives such as legal separation and annulment.
According to some estimates, as many as 85 percent of debtors who filed Chapter 7 under the old law are still eligible to file Chapter 7 under the BAPCPA.