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Exploring the Bankruptcy Abuse Protection and Consumer Protection Act of 2005

Updated on February 27, 2013

The Bankruptcy Abuse Protection and Consumer Protection Act of 2005, also referred to as BAPCPA, was a bill passed by the federal government to protect both consumers and lenders from the improper use and abuse of the current bankruptcy system. In the past, it was relatively easy for consumers to file for bankruptcy and earn a “clean slate” after years of often intentional credit abuse. The new laws ensure that those who truly need bankruptcy protection are able to obtain it while those who in the past wanted to fraudulently abuse the system are no longer able to do so.

Changes to Bankruptcy Law Introduced by BAPCPA

There were several major changes to the bankruptcy laws that were introduced by the Bankruptcy Abuse Protection and Consumer Protection Act. Many of these changes made it much more difficult for individuals to file for bankruptcy. In turn, those who did not actually need to file for bankruptcy are now discouraged from attempting to start proceedings.

The first major change is the requirement that the petitioner must pass a means test. The means test is the court’s way of weighing an individual’s income against his debts. Doing so allows the courts to determine if you are attempting to write off debts that you could realistically continue to pay.

Those who pass the means test are often eligible for a Chapter 7 bankruptcy filing. Chapter 7 filings allow individuals to discharge (or eliminate) all of their debts without obligating them to repay any portion. Those who fail the means test may be required to file for Chapter 13 bankruptcy. Chapter 13 filings require individuals to repay all or part of their debts over a period of five years.

The other major change to the bankruptcy law is the requirement that every individual who wishes to file a bankruptcy petition must participate in pre-bankruptcy credit counseling before he makes his official filing. This credit counseling course must be approved by the US Trustee Program and must be taken within 6 months of filing for bankruptcy. Once you do file, you will also be required to take a pre-discharge credit counseling course.

BAPCPA Results

The results of the changes made by the Bankruptcy Abuse Protection and Consumer Protection Act of 2005 were immediately made clear. The drop in the number of bankruptcy petitions filed in 2006 was astounding compared to those made in the year before. During the year 2005 there were approximately 2,078,000 bankruptcy petitions filed but during the year 2006 there were only approximately 617,600 and many of them were filed as Chapter 13 instead of Chapter 7.

The 70% drop in bankruptcy filings over the course of only one year is astounding proof that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was designed to work. Rest assured, those who really need to file for bankruptcy will still have the opportunity to do so, but blatant abuse of the bankruptcy system is now a thing of the past.


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