The New Bankruptcy Law: Understanding BAPCPA
On October 17, 2005, a new bankruptcy law took effect, putting more requirements on people interested in filing bankruptcy, but not necessarily making it harder to file.
Lobbyists from the credit card industry urged Congress to change bankruptcy laws for nearly ten years before the new law finally passed.
They insisted that BAPCPA would stop the “serious problem” of people running up excessive credit card debt on purpose, knowing they could discharge it during bankruptcy.
But the lobbyists and Congress ignored some important stats on bankruptcy filings in the U.S. Fraudulent bankruptcy filings are estimated to be around 2% of the total – hardly reason to overhaul the nation's system, in our opinion.
The most noticeable changes BAPCPA introduced were the pre-filing credit counseling briefing, the pre-discharge debtor education class and the Chapter 7 means test.
- The credit counseling briefing is designed to make sure potential bankruptcy filers don't have any other options (such as debt consolidation, refinancing and negotiation) to manage their debt.
- The debtor education course is designed to give filers the financial management skills they need to maximize the benefits of their fresh financial start.
- And the Chapter 7 means test is meant to prevent people from getting their debts excused when they have enough money to pay them back.
Is it Harder to File Bankruptcy?
Because BAPCPA added paperwork requirements for filers, there are a few more hurdles to jump over than before the new bankruptcy law. But, with the help of a bankruptcy lawyer, you're not likely to struggle.
If you're wondering a whether the new bankruptcy law significantly narrowed eligibility – the answer is "not really."
See, the "abuse" referred to in the law's name was much less common than the credit card industry led Congress to believe.
Because very few bankruptcy petitioners were actually abusing the system, adding new protections against such abuses didn't really make much difference.
Reports from credit counseling agencies just after the law change indicated that only about 4% of potential filers have feasible options besides bankruptcy. In summary, if you need bankruptcy protection, odds are good that you'll qualify.
The Chapter 7 Means Test
Because Chapter 7 bankruptcy provides filers with a discharge (elimination) of their debts, petitioners must pass a qualifying test before receiving this type of protection.
And, if you guessed that credit cards are usually sources of unsecured debt, you guessed right: it makes sense, then, that credit card companies would want to support the new bankruptcy law and limit the number of people eligible to have their credit card debts completely forgiven, wouldn't it?
Anyway, the means test is composed of two major parts.
First, you compare your household income to the median income of a family your size in your state. If you fall below the median, you likely qualify for Chapter 7. If you don't, you must then calculate your disposable income, as defined by the government.
These calculations can be a bit tricky, but with the help of a bankruptcy attorney, they're nothing to worry about. And, in most cases, you're likely to qualify if you want to file under this chapter – initial reports showed that only about 5% of those who took the means test didn't "pass" it.
Plus, if you don't qualify for Chapter 7 bankruptcy, you may be able to get protection under Chapter 13.
Has BAPCPA Influenced Bankruptcy Filings?
Right after BAPCPA went into effect, the number of bankruptcy filings dropped off drastically, which supporters of the law change cited as evidence that the changes had worked.
In reality, though, the drop-off likely occurred because massive numbers of filers had rushed to file before BAPCPA took effect, because they were afraid they wouldn't qualify once the bankruptcy laws were altered.
As the months and years have passed, though, filing numbers have been creeping upward. And, with the economy struggling, some analysts are predicting near-record filing levels in the coming months.
What Does BAPCPA Mean to You?
Your main concerns relating to BAPCPA are the pre-filing credit counseling course, the pre-discharge debtor education course and the Chapter 7 means test.
It's important to make sure you complete the credit counseling briefing in a timely manner or else the bankruptcy court may not accept your petition.
But, once your case is underway, you can consult with your bankruptcy lawyer for details on what's expected of you. You bankruptcy attorney can even help you crunch the numbers to see if you pass the means test.
So... Can I File for Bankruptcy?
Chances are, you'll still be able to receive protection from the bankruptcy court if you need it.
BAPCPA may mean that you'll have to do a bit more legwork to get your protection and discharge, but the odds are good that you'll still qualify.
If you're interested in learning more about BAPCPA or are ready to start working toward your fresh financial start, let Bankruptcy Central put you in touch with a bankruptcy lawyer practicing near you.
Simply fill out our free bankruptcy case evaluation form or call 866-288-7281 and we'll connect you with a local sponsoring bankruptcy lawyer.
The above summary is not legal advice. Bankruptcy laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.