Bankruptcy Law Reforms Reveal, Rather Than Fix, Woes

After eight years of partisan debate, Congress has radically altered the bankruptcy system, making it tougher for people beset by financial woes to obtain a fresh start. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, recently signed into law, represents much of what is wrong with the way important policies are debated and enacted.

The core of the new law is its “means test.” Simply put, the means test requires debtors who have the ability to pay some of their debts to file a Chapter 13 bankruptcy. In Chapter 13, the debtor must pay all of his or her “disposable income” over to creditors for a three to five year period before receiving a discharge of the remaining balances. The means test is designed to reduce the number of people filing Chapter 7 bankruptcies in which debtors turn over assets to creditors in exchange for an immediate discharge.

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