Understanding the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made many substantial changes to bankruptcy law and procedures. The net effect of these changes is to make it somewhat more difficult to file for bankruptcy (especially Chapter 7 bankruptcy) and to impose a number of new rules and restrictions on bankruptcy filers.

During debate on the BAPCPA, Congress expressed concern that some debtors were abusing the bankruptcy system to have debts wiped out that should have been repaid. As many news reports pointed out at the time, the credit card industry was deeply involved in writing the law and lobbying for its passage, which also influenced the debate; because credit card debt is discharged in bankruptcy, credit card issuers had a strong incentive to make it more difficult to file for bankruptcy and receive a discharge of debts.

Changes in Bankruptcy Law

Here are some of the changes enacted by the BAPCPA:

  • Debtors who want to file for Chapter 7 must pass a means test: A financial calculation demonstrating that they don't earn enough, after subtracting allowed expenses from their income, to fund a Chapter 13 repayment plan. (For more on the means test, see Nolo's article The Bankruptcy Means Test: Are You Eligible for Chapter 7 Bankruptcy?; for online help with the math, see Nolo's means test calculator.    
  • Debtors must complete a credit counseling course before filing for bankruptcy. Before getting their debts discharged, debtors must complete a second course, on personal financial management.  
  • Debtors who have moved in the last two or three years may face some restrictions in which state's exemption laws they may use to protect their property in bankruptcy. The purpose of these rules is to prevent people from moving to states with the most lenient bankruptcy laws just before filing. (You can find the details in Bankruptcy Exemptions: Which State's Exemption System Can You Use?
  • Debtors may not file for bankruptcy as frequently. Debtors may not file a Chapter 7 bankruptcy case until eight years after a previous Chapter 7 discharge or six years after a previous Chapter 13 discharge.  

Is Bankruptcy Still an Option?  

The law includes a number of other provisions, many intended to root out fraud or abuse of the bankruptcy remedy. At the time the BAPCPA passed, commentators predicted that the law would drastically reduce the number of people filing for bankruptcy, particularly those filing for Chapter 7. For a variety of reasons (including the troubled economy of the past few years and the genuine problems so many debtors face), these predictions haven't come to pass. Plenty of people are still eligible to file for bankruptcy; although the 2005 law may place some additional obstacles and requirements in their way, they will ultimately qualify for the debt relief bankruptcy offers.  

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