Effects of the Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA)

If you’re thinking about filing for consumer bankruptcy, you might have heard about the Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA).  What is this law, and can it prevent debtors from filing for bankruptcy?
The BAPCPA’s Contentious History and the Limits of Debt Forgiveness
The BAPCPA, a law that amended the U.S. Bankruptcy Code, was the result of “intense lobbying” from credit card companies, according to an article in the Washington Post.  This legislation was passed back in 2005, and it was aimed at preventing consumers from taking advantage of bankruptcy protection.  To be sure, it was designed as a reform measure, intended to limit personal bankruptcies and their effects.  However, the law has been contentious since it was passed.
On the one hand, some commentators believe that debtors will take advantage of the ability to discharge debt in bankruptcy, and that legislation like the BAPCPA is necessary to protect consumers.  Consumer advocates, on the other hand, believe it’s important to assist well-meaning consumers who have acquired unexpected debts by allowing them the full protections associated with personal bankruptcy.
In other words, commentators on both sides reflect the balancing act that bankruptcy law must always attend to: “helping debtors who experience adverse shocks by discharging some of their debt, and promoting credit availability by enforcing the obligation to repay.”
What are the potential harms associated with debt forgiveness in bankruptcy?  For one, forgiving debts in Chapter 7 bankruptcy, for instance, “harms future borrowers by reducing credit availability and raising interest rates.”  In short, consumers who don’t need bankruptcy protection argue that an ease of filing for bankruptcy actually hurts people financially who don’t need to file for it.
Definitions and Results of the BAPCPA
So how, precisely, does the BAPCPA limit bankruptcy filings?  In short, the law does one primary thing: it prevents debtors from choosing between Chapter 7 or Chapter 13 bankruptcy.  Before this reform legislation was passed, debtors could choose between the two types of bankruptcy, and those debtors could expect that most of their unsecured debts would be discharged.  Now, however, under the BAPCPA, debtors must pass the “means test” in order to be eligible for Chapter 7.  If they don’t pass the means test (in other words, if the debtor’s income is above a certain defined amount), then the debtor will only be able to file for Chapter 13.
In addition to limiting the types of bankruptcy available to all debtors, the BAPCPA also instituted some other significant changes, including but not limited to:
·      Increasing the costs of filing for personal bankruptcy;
·      Reducing the amount of debt discharged;
·      Lengthening the minimum waiting period between bankruptcy filings; and
·      Requiring debtors to engage in credit counseling and debt education courses.
What have the effects of the BAPCPA been?  For one, it has reduced the number of consumer bankruptcy filings.  To be sure, a study published in the American Bankruptcy Law Journal found that the reforms associated with the BAPCPA brought down the total number of bankruptcies across the country and decreased credit card companies’ losses.  However, in limiting the ability for a debtor to file, the law may be hurting consumers in Chicago and across the country.
Before you file for personal bankruptcy, it’s important to remember that state and federal bankruptcy laws are extremely complicated.  An experienced Chicago bankruptcy attorney at the Emerson Law Firm can examine your situation and discuss your options with you today.
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