Bankruptcy Abuse Prevention and Consumer Protection Act

Posted January 18th, 2010 by BankruptcyLawyer

During the Bush administration, several laws were passed to make it more difficult for consumers to file Chapter 7 bankruptcy. Mostly the result of heavy lobbying by the banking industry and credit card companies, the changes in the laws resulted in a drastic drop in filings. The new law is referred to as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPACPA.

Since then, the economy has dramatically declined. With the massive amount of foreclosures and the collapse of securities, bankruptcies are on the rise again. Records show that in 2008, there were approximately 1.1 million cases filed in the US, up 32% from the year before. But because of the changes in the laws, Chapter 7 may not be a viable option for many who previously qualified.

Does this affect your eligibility for filing Chapter 7? Or will you be required to file Chapter 11 or 13? Here are some of the biggest changes in regards to filing Chapter 7:

Restrictions on Time for Filing

You will not be eligible to file for Chapter 7 if you have filed and received a Chapter 7 discharge within the last 8 years.

Credit Counseling

It is now a mandatory requirement in filing bankruptcy that you meet with a federally approved credit counselor within the first six months of filing, as well as attending a money management course within the district in which you are filing. Most all courses are available online.

Stricter Exemptions for Homesteads

The old laws allowed for protection on the equity in your home based on the state in which you filed. The new laws are more complicated, and require an analysis of where you lived for the majority of the 180 days before filing, how long before the filing the home was acquired, and if you have violated any securities laws or been involved in criminal activities.

The Means Test

According to the new laws, filers must submit to a means test to determine eligibility for Chapter 7:

• Income less than the state’s median levels automatically allows for filing Chapter 7.
• Income greater than the median income requires a further test to see if your “disposable income” is excessive. If it is determined that the disposable income can be projected over the next five years to be more than $100 per month, you cannot quality for Chapter 7.
• If it is determined that disposable income over the next five years will be greater than $10,00 or more than 25% of the unsecured debt to be discharge, one remains ineligible for filing Chapter 7.
• As a last resort, if filers can prove “special circumstances, eligibility may still apply even though you fail the means test.