BAPCPA

On April 20, 2005, U.S. President George W. Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. The act, which had been passed by the 109th United States Congress on April 14, 2005, made significant changes to U.S. bankruptcy law. Although the act was signed into law in early 2005, most of its provisions apply only to bankruptcy cases that were filed on or after Oct. 17, 2005.

One of the main purposes of BAPCPA, which is often simply called the new bankruptcy law, is to make it harder for people to file for Chapter 7 bankruptcy. Under BAPCPA, some people may file for Chapter 13 bankruptcy rather than Chapter 7.

Chapter 7 and Chapter 13 Explained

In order to understand BAPCPA, you must first understand Chapter 7 and Chapter 13 of the United States Bankruptcy Code:

• Chapter 7: Chapter 7 governs the process of liquidation under the U.S. bankruptcy laws. In Chapter 7 bankruptcy, the person who files for bankruptcy turns over all of his non-exempt property to a trustee, who converts the property into money. This money is then distributed to creditors.In many cases, people who file for Chapter 7 have no assets to turn over and, therefore, lose nothing after filing for Chapter 7. In these cases, people''s debts are simply discharged, or forgiven.Chapter 7 is the most common form of bankruptcy in the United States.
• Chapter 13: Chapter 13 bankruptcy allows people to pay off their debts over a period of three to five years. People who would lose property if they filed Chapter 7 bankruptcy are often drawn to Chapter 13 bankruptcy. People who have a steady income and whose income can cover both reasonable expenses and the debt are good candidates for Chapter 13 bankruptcy.

By attempting to make fewer people eligible for Chapter 7 bankruptcy, BAPCPA attempts to hold people more responsible for paying off their debts.

BAPCPA Means Test for Chapter 7

BAPCPA uses a means test to determine whether or not a person is eligible for Chapter 7 bankruptcy. However, approximately 85 percent of debtors are not subjected to this means test. Of the approximately 15 percent who must take the means test, a large percentage pass.

The BAPCPA means test is used on filers whose gross incomes (a person''s income before all deductions and taxes) are above the median income of others in their state during the six-month period before filing. These filers must calculate their disposable monthly income to determine whether they can make sufficient payments on their debts. If they can, they qualify for Chapter 13. If their disposable monthly income is less than $100, these individuals can file bankruptcy under Chapter 7.

People who have gross incomes below the median income in their state automatically qualify to file for Chapter 7.

Criticism of BAPCPA

Many people oppose the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Critics mainly object to the following:

• additional penalties and responsibilities that BAPCPA places on filers
• the BAPCPA means test
• the bill''s sponsors'' arguments that bankruptcy fraud is common
• the fact that a number of BAPCPA''s provisions favor credit card companies.

Critics of BAPCPA include consumer advocates, retired bankruptcy judges and legal scholars, among others.