Bankruptcy Reform: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was passed by Congress and signed into law by President Bush in April 2005. Some reforms included tightened eligibility requirements and an emphasis on consumer education.

Changes instituted by this law took effect on October 17, 2005. Below are some of the key changes that happened because of this bankruptcy law.

Mandatory Credit Counseling Under the BAPCPA

You must take a credit counseling course within 180 days before filing for bankruptcy and submitting your filing fee.

Find more information on the credit counseling procedure before filing your bankruptcy petition from the U.S. Trustee Program. This program can also provide you with a list of approved credit counseling agencies.

The U.S. Trustee Program is a component of the Department of Justice. It's responsible for overseeing the administration of bankruptcy cases. See Bankruptcy Credit Counseling for more details.

Stricter Eligibility for Chapter 7 Filing

Chapter 7 bankruptcy, also known as liquidation, allows you to have some of your unsecured debts discharged. Under the BAPCPA, you must meet certain eligibility requirements under a means test to file for Chapter 7 bankruptcy.

Under the means test, generally, if your current monthly income is less than the median income in your state, you may file for Chapter 7. If not, you can't file under Chapter 7—you must file a Chapter 13 bankruptcy.

Tax Returns and Proof of Income Required

Under the 2005 bankruptcy law, those wishing to file bankruptcy under Chapter 7 or Chapter 13 must show proof of their disposable income. They can't do this by providing federal tax returns from the last tax year.

If a bankruptcy filer has not filed their required tax return for the previous one or two tax years, they may have to do so before they can file bankruptcy. For example, if they were employed and required to file a tax return for that time period.

More Filings Under Chapter 13

For those ineligible for filing under Chapter 7 based on the means test, the only bankruptcy option is to file under Chapter 13 (reorganization) instead.

There are a few major differences between these two types of bankruptcy, including how long each one stays on your credit report. The main distinction is that the Chapter 13 debtor enters into a three to five-year repayment plan in which they must pay a certain amount of money to creditors. An expenses-to-income formula determines this payment plan.

For more details, read about Chapter 7 vs. Chapter 13 Bankruptcy.

Fewer 'Automatic Stay' Protections for Filers

People who file for bankruptcy have traditionally been entitled to certain immediate protection from secured and unsecured creditors and others. This includes protection from:

These protections are part of the automatic stay effect of a bankruptcy filing. This is because many potential legal actions against the filer must stop.

But, the new BAPCPA bankruptcy rules have eliminated these protections. For example, filing for bankruptcy no longer delays or stops the following:

New Priority for Unpaid Child Support and Alimony

Bankruptcy laws provide a system of repayment priority for the parties that debtors owe money, also known as creditors. Under the new bankruptcy law, the bankruptcy trustee will pay people owed unpaid child support and alimony ahead of other creditors. That means the bankruptcy filer's family members take priority over other lenders, including student loans. 

Mandatory Financial Management Education

After filing for bankruptcy and often after the conclusion of the meeting of creditors, bankruptcy debtors must participate in a government-approved financial management education program. Only after that will the bankruptcy court grant you a bankruptcy discharge.

Find more information on the procedure for financial management education and a list of approved debtor education providers from the U.S. Trustee Program.

Questions About Changes in Bankruptcy Law? Talk to a Lawyer Today

If you're considering filing for bankruptcy, changes in the law or local rules may impact your eligibility. Remember that bankruptcies can stay on your credit report for up to 10 years. This can affect your ability to open a credit card or receive personal loans.

Legal advice from a bankruptcy attorney can help you succeed. A lawyer can help:

  • Identify your liabilities
  • Understand bankruptcy forms
  • Identify any exemptions in your state so you can keep your personal property or real estate
  • And more

Contact a local bankruptcy attorney experienced with the Bankruptcy Code (U.S.C. Title 11). Learn how they can help improve your financial affairs.

See here for information on how BAPCPA affects Subchapter V's Chapter 11 bankruptcy for small businesses (less than 1% of bankruptcies filed in 2022).

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