Understanding How the BAPCPA Continues to Shape Consumer Bankruptcy Filings

In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became law, making it more difficult for consumers to file for Chapter 7 bankruptcy. As a recent article in GQ points out, the BAPCPA took effect only a short time before the recession and foreclosure crisis in 2008, preventing many struggling consumers from being eligible for Chapter 7 bankruptcy. As the article contends, now is an important time to revisit the BAPCPA because two of the Democratic presidential candidates played important roles regarding bankruptcy reform in the late 1990s and early 2000s, and they were on different sides of the issue.

More precisely, both Joe Biden and Elizabeth Warren were involved in developing and opposing changes to U.S. bankruptcy law. While Biden supported the BAPCPA as a senator from Delaware, Warren opposed it. Given that consumer protection issues could play a role in the Democratic presidential primary and that the BAPCPA may arise in national conversations, it is relevant to look back on the passing of the BAPCPA and the role it continues to play in the lives of consumers in Oak Park and across the country.

BAPCPA Designed to Prevent Chapter 7 Bankruptcy Abuse
When a consumer decides to file for personal bankruptcy, they will typically file either for Chapter 7 bankruptcy or Chapter 13 bankruptcy (and in rare cases Chapter 11 bankruptcy). The BAPCPA is not designed to prevent Chapter 13 filings, but rather to limit Chapter 7 filings. As you may know, the BAPCPA made some of the following changes to U.S. Bankruptcy law:
  • Required consumers to take the “means test” to determine whether their income was too high to qualify for Chapter 7 bankruptcy;
  • Required debtors to complete a credit counseling course within 180 days after filing for Chapter 7 bankruptcy;
  • Prevented debtors from discharging certain “luxury goods” purchased on credit;
  • Prevented debtors from discharging certain cash advances drawn from credit cards; and
  • Made it more difficult to discharge student loan debt through Chapter 7 bankruptcy.
The credit card industry came out in strong support of the BAPCPA, but many consumer protection groups opposed it.

Effects of the BAPCPA
Prior to the passage of the BAPCPA, only about 24% of consumer bankruptcy filings were Chapter 13 bankruptcy filings. However, by 2017, Chapter 13 filings represented nearly 40% of all consumer bankruptcy filings. Even though far fewer individuals and married couples are filing for Chapter 7 bankruptcy, it is not clear that the legislation actually has prevented any kind of bankruptcy abuse. The article cites Melissa Jacoby, a bankruptcy law professor at the University of North Carolina, who explained, “I doubt that the bill reined in the abuses that the bill was premised on, in part because they didn’t necessarily exist in the first place.”

As the article contends, “14 years later the BAPCPA is still making it more costly and cumbersome to declare bankruptcy.” Currently, credit card debt in the U.S. totals around $870 billion, and it is possible that the country could enter another recession. If we do head toward another recession and more debtors want to seek Chapter 7 bankruptcy protection, the BAPCPA could make that difficult or impossible.

Contact a Bankruptcy Lawyer in Oak Park
Do you have questions about filing for consumer bankruptcy? An experienced Oak Park consumer bankruptcy attorney can discuss your situation with you today. Contact the Emerson Law Firm for more information.


See Related Blog Posts:
Can I Keep My Car if I File for Consumer Bankruptcy?
New Report Addresses Trends in Consumer Bankruptcy

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