Basics of BAPCA
BAPCPA, or the Bankruptcy Abuse Prevention and Consumer Protection Act, was passed by the US federal government in 2005. The purpose of this act was to reduce the number of Chapter 7 bankruptcy filings and increase the number of Chapter 13 filings. The reason creditors prefer Chapter 13 over Chapter 7 is that debtors have to partially repay their debts before they are discharged; whereas, with Chapter 7, all debts are discharged.
Supposed Abuse
BAPCPA was created in order to reduce the possibility of bankruptcy abuse. Prior to BAPCPA, anyone could file for Chapter 7 bankruptcy and have their debts discharged. Only an officially appointed trustee could determine “abuse,” which, if discovered, would bar a bankruptcy candidate. Because officials feared that too many people were abusing the system and eradicate debts that could have been taken care of, all candidates with primarily consumer debts are subjected to a “mean’s test” to determine their eligibility.
BAPCPA corrections
The BAPCPA amends many parts of the US bankruptcy code. The most considerable changes follow:
- A “means test” is now used to help determine whether or not a bankruptcy candidate is eligible to file for Chapter 7.
- Chapter 7 filers are now subjected to random and scheduled audits to ensure that their financial documents are legitimate.
- All bankruptcy candidates are required to attend credit counseling prior to filing.
- All filers are required to attend financial education programs before their debts are discharged.
- Filers are now subject to new fees, including: filing fees, attorney liability, increase debt repayment, and increased compliance requirement costs.
- Exemption rules and requirements are more strict.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) made sweeping changes to American bankruptcy laws, affecting both consumer and business bankruptcies. Many of the bill’s provisions were explicitly designed by the bill’s Congressional sponsors to make it “more difficult for people to file for bankruptcy”. Although the BAPCPA was intended to make it more difficult for debtors to file a Chapter 7 Bankruptcy—under which most debts are forgiven (or discharged)–and instead force debtors to file a Chapter13 Bankruptcy—under which debts are discharged only after the debtor has repaid some portion of these debts. Approximately 85% of debtors are not subject to its “means test” and a large percentage of the rest are able to “pass” the means test.
What Is the “Means Test?”
The means test analyzes a bankruptcy candidate’s income to determine their eligibility for filing for Chapter 7. If the means test determines that a debtor’s income is greater than the state’s median income, after certain deductions, then they are considered abusive under the BAPCPA, and will be ineligible for Chapter 7. Instead, they may opt to file for Chapter 13, which will require them to repay part of their debts before they are discharged.Candidates must note that primarily consumer debts are subjected to the means test. If an individual’s debt is from other sources, such as medical expenses, they are not suspect.
Recent Updates
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